Risk of Disruption to Russian Commodity Flows Growing

We consider the risk of disruption to Russian commodity supplies to be growing for several reasons. Firstly, it is clear that Western sanctions that go further than expected and Russian President Vladimir Putin’s order to place nuclear forces on high alert mark an escalation in the Ukraine crisis. As such, disrupting flows of commodities does not seem as extreme an outcome as just four days ago. Second, the severity of sanctions has prompted extreme caution from Western buyers of Russian commodities, with significant “self-sanctioning” taking place. Commodity prices have risen in response to the newsflow, with energy commodities in particular incorporating a greater geopolitical risk premium as the risk to Russian exports grows. Although we stick to our base case for now, we see a higher chance of our high case forecasts actualising given the risks to supply. Most m etal prices have also moved higher as disruptions from the “self-sanctioning” is materializing quickly, both in terms of demand for Russian metal drying up and logistical hurdles arising.