What Rising Geopolitical Risks Mean for Commodities

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Text on screen: View From the Trade Floor: What Rising Geopolitical Risks Mean for Commodities

Text on screen: Greg Sharenow, Head of Commodities

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The escalation between Russia, Ukraine, NATO, and the West over the past few months has been an incredibly important component to the narrative of commodity markets largely driven by the fact that Russia is an incredibly important exporter of many commodities, not just energy. While oil implications in my mind are small because Russia exports only 350,000 barrels per day currently through the Ukraine and could reroute much of that oil, the implications for natural gas is much more important for Europe, given the dependency of Europe on natural gas supplies.

About 25-30% of European supplies are Russia-sourced. And 10% flow through the Ukraine. Should any kinetic activity lead to a disruption of the supply, that would have meaningful implications for European natural gas prices, which would have secondary implications for power, coal, and even oil and other commodities where the rise in prices for natural gas would lead to the increased costs of the production of other commodities.

Given how tight many of these commodity markets globally would have, a small loss in export volume could have a meaningful implication for prices.

What does this mean? Investors need to be cognizant of the risks that their portfolios have to any potential shocks from geopolitics. This is where commodities play an incredibly important role in portfolio construction and portfolio diversification.

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