Russia Sanctions To Have Limited Impact On Commodity Prices


BMI View: There will be limited upside pressure on most commodity prices as a result of sanctions on Russia. Most significantly, although slightly higher gas prices for Europe are likely, energy prices will remain contained. The main impact on commodity markets of ongoing sanctions will be to expedite the rate at which Russia shifts its growth strategy towards the east.

The EU and the US have ratcheted up sanctions against Russia and we expect further such measures in the coming months (see ' Western Sanctions: Still Room For Further Tightening', July 30). The EU agreed on July 29 to bar Russian state-owned banks from raising debt and equity in European markets, restrict European exports of equipment for the modernisation of the Russian oil industry, and equipment for military use. Shortly afterwards, the US expanded its own list of targeted sanctions to include three more banks - VTB Bank, Bank of Moscow and Russian Agricultural Bank - and a state-owned shipbuilding company.

Despite our expectation that Russia will retaliate to this escalation of sanctions, we do not foresee major disruption to commodity flows from Russia and thus do not expect commodity prices to head significantly higher as a result of the ongoing crisis. We expect Russia to retaliate by targeting specific Western companies and restricting their operations in Russia. Crucially, although slightly higher gas prices for European customers are likely, a severe curtailment to supply and significantly higher prices is not our core view.

Central To The Commodities Global Supply Chain
Russia - Share & Rank Of Global Exports By Commodity (2012 unless otherwise stated)

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Sector: Oil & Gas, Mining, Commodities, Metals