Chaos in commodities as Russia’s war on Ukraine upends trade

The turmoil unleashed in commodity markets by Russia’s invasion of Ukraine worsened on Monday as LNG orders were paused, finance for trade in raw materials dried up and Black Sea wheat sales froze.

The turmoil unleashed in commodity markets by Russia’s invasion of Ukraine worsened on Monday as LNG orders were paused, finance for trade in raw materials dried up and Black Sea wheat sales froze.

As tougher U.S. and European sanctions threaten to partly cut Russia off from the global financial system, disruptions to shipments of raw materials from palladium to wheat mounted. Buyers also paused purchases of Russian liquefied natural gas as they awaited clarity on restrictions against banks and companies. The cost of shipping the nation’s raw materials is soaring, while the fallout is reverberating from London to Hong Kong as international investors ditch Russian commodities assets.

The immediate focus is on disruption to Black Sea trade, which includes millions of barrels of oil a day and about a quarter of the world’s grain exports. While Russian raw materials were so far exempted from sanctions, the threat of a severe dislocation to flows will increase as the conflict escalates.

“Unintended consequent risk, meaning a pipeline outage or something like that, is extraordinarily high, and this is on top of the difficulty of getting the seaborne trade up and running,” Jeff Currie, head of commodities research at Goldman Sachs Group Inc., said in an interview with Bloomberg TV. “This is an enormous amount of oil that has the potential to be disrupted for weeks.”

Even before the expulsion of some Russian banks from the SWIFT messaging system -- used for trillions of dollars worth of transactions around the world -- a number of lenders were halting the finance of commodities trading from Russia.