The Russian invasion of Ukraine has not only initiated a global humanitarian crisis, it’s given rise to greater risk exposures in capital flows, trade and commodity markets worldwide. Our experts are sensitive to the effect of the conflict on global economies as well as its impact on our community in deep and varied ways. But this moment also renews our purpose: to share a unique view – combining quality data and cross-sector insights – at the moments when you need it most. As global events unfold, our experts are here to provide you the essential intelligence you need to understand the impact of conflict and make clear decisions.
The Russian invasion of Ukraine has since changed the economic landscape, posing downside risks to economic growth - notably in Europe - and driving inflationary pressures higher via higher energy and other commodity prices, whilst also disrupting supply chains.
The European Union (EU), the United States (US), United Kingdom (UK), and others, have imposed stringent restrictions on exports to Russia, following its invasion of Ukraine. These new controls are intended to affect significant sectors of Russia's economy, such as energy, aviation, aerospace and technology. Given the 2014 sanctions enforced on Russia's oil and gas exploration industry, as a result of the Crimea invasion, has not deterred from further aggression towards Ukraine; it is likely that there will be incremental sanctions and controls enforced on Russia depending on the changing severity of the situation.
Military actions in Ukraine will cause wheat, corn, and sunflower oil exports to be significantly reduced in the next three months due to disruption to logistics, damaged roads and ports, a lack of workers due to safety, and instability of the banking system. After that, Ukrainian exports will stabilize. Moreover, sanctions against Russia do not materially cut them off from world commodities trade. This would mean the rally in ag commodities will be reasonably short-lived, less than six months.
European countries are not all reliant on Russian gas to the same extent. Spain primarily uses Liquefied Natural Gas (LNG) - imported from many countries including Russia - and imported pipeline gas from Algeria. Sweden is not a major gas consumer although many states in central and eastern Europe remain heavily dependent, having inherited the former Russian gas pipeline system upon independence.
The March light vehicle production update from S&P Global Mobility (formerly the automotive team at IHS Markit) is likely to downgrade its 2022 forecast by 2.6mn units (i.e. to 81.6 million). The downgrade decomposition will broadly comprise just under 1mn units from lost demand in Russia and Ukraine; and the remainder split between 1) worsening semiconductor supply issues, and 2) loss of Ukraine-sourced wiring harnesses and other components respectively. In addition, the complete loss of Russian palladium is a tail risk with the potential to become the industry's biggest supply constraint.
Before the Ukraine invasion, Russian oil exports were about 7.5 MMb/d—roughly 4-5 MMb/d of crude oil and 2-3 MMb/d of products. Our Commodities at Sea data indicates that loadings and unloadings of Russian crude oil and products are down from pre-invasion levels. Severe price discounts for Russia's Urals crude oil, $29/bbl below Dated Brent compared with typical discounts of $2-4/bbl, indicate great difficulty selling Russian oil since the invasion. At the same time, mainland China has just imposed its most severe regional restrictions on movements since the 2020 COVID-19 outbreak—contributing to stunning volatility and a sharp price drop. Most of Russia's preinvasion oil sales were to NATO members. That will change—and it began on 8 March when the United States banned the import of Russian oil. In Europe, the transition away from Russia will take longer.