The Russian-Ukrainian conflict causes a storm in the commodity markets


Thursday, March 17, 2022 / 5:10 p.m. / S&P Global Ratings / Header image credit: Reuters

S&P Global Ratings believes there are a wide range of channels through which the conflict in Ukraine may affect emerging markets (EM), according to its report released today, “Emerging Markets Monthly Highlights: Russia-Ukraine Conflict Causes A Storm Across Commodity Markets”. Many emerging markets are net importers of energy and are vulnerable to fluctuations in energy prices. While higher prices will benefit some commodity exporters, the conflict-induced slowdown in global growth will worsen the external environment. Continued market volatility could put additional pressure on emerging market yields amid upcoming Federal Reserve tightening.

Commodity prices jumped in many categories. Continued rising prices in energy markets have prompted us to update our current Brent oil forecast for the remainder of 2022 to $85 per barrel. Prices for other commodities have also surged, with double-digit increases in precious and industrial metal prices since the start of the year. Global food prices have also risen, with wheat prices up more than 40% since the start of 2022.

Inflation risks are now firmly on the upside. Data from some emerging markets is beginning to show the impact of the recent spike in energy and food prices on inflation. Food consumption accounts for a larger share of consumer baskets in emerging markets than in developed economies, making them particularly vulnerable to any spike in global food prices. Rising commodity prices will complicate disinflation in emerging markets and pose challenges for central banks.

Spreads increased in emerging markets. EM EMEA spreads increased much more sharply than in other regions, given the geographical and economic proximity of this region to the conflict. However, spreads in other emerging markets also increased, due to market volatility and the fallout from rising commodity prices. Continued volatility could further tighten funding conditions for lower-rated emerging markets.

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