For the last few years, we have been highlighting political risk or geopolitical risk as a key risk in commodities. As I sit here not 400 miles from a major European war, I can’t help but reflect on this and underline what we have been pointing towards all this time. The price of everything is sky rocketing driven by massive rises in energy costs and by supply chain disruption. As an article I just read and posted in the news section of CTRMCenter, points out, Russia and Ukraine account for 30% of the world’s grain and their exports have ground to a halt. Meanwhile, European gas prices have surged while the price of oil is now at eye popping heights and reflected in an unprecedented 50CZK per liter in local gas stations (it was 36 a week ago). Also, as the article points out, raw materials are increasingly being used as political tools for presumed leverage – sanctions, tariffs and so on while in the background there, an energy transition is taking place that is also serving to switch demand from one group of commodities to another – also in short supply (oil to metals). All of this is placing increasing strains on supply chains and driving further inflationary pressures.
The article is worth a read as it talks about how commodities benefited from globalisation, which we now see fracturing into the sharpened shards of geopolitics. The future of commodities trade may from now on be as much about securing supply as it is about price. Supply risk and supply chain risks are set to become increasingly important. I also suspect that certain political drives impacting commodities in the west may found themselves slowed, modified or scrapped by the increasing realisation that, under the current scenario, they are too risky. A view apparently shared by Elon Musk! We can already see that in Germany, for example. Many of us are polishing off our crystal balls anxiously peering into the future but finding our vision clouded by events that just a couple of weeks ago were unthinkable. And this is perhaps the biggest risk of them all right now – planning.
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