Helima Croft on disruption in the commodities markets

We’re living in a world of accelerating change and crises – energy crisis, geopolitical crisis, climate crisis, health crisis, and economic crisis – that have brought unprecedented levels of disruption to commodity markets.

As the world deals with the war in Ukraine, the climate crisis and the aftermath of the pandemic, global commodity markets are being reshaped in ways that will be critical to the future of the world economy, profoundly altering patterns of trade, production and consumption over decades.

A new world of critical commodities

As the conflict in Ukraine continues, Russia’s strategy to weaponize commodity exports is impacting not just oil and natural gas, but also critical minerals, metals and agricultural output.

This is a multi-faceted commodity story with the potential to slowdown the energy transition, particularly if governments are unable to acquire the critical commodities needed to scale up greener and cleaner technologies.

The energy transition is set to radically reshape the resource dependencies between commodity producers and consumers that have been a hallmark of the fossil fuel age. Sun and wind are more evenly distributed across the globe than oil or natural gas, yet the critical mineral building blocks needed for green infrastructure are concentrated in a small number of nations, many of which have profound governance and security problems.

This poses a serious question: could the energy transition swap out reliance on one set of commodities and commodity producers for another? International organizations such as the IEA and World Bank have already begun to stress the need to focus on such minerals through their scenario analysis.

Avoiding the mistakes of the past

While there is an opportunity for resource rich countries, there are also challenges in increasing production in a responsible manner, equitably distributing the gains and benefits and avoiding the resource trap driven mistakes of the past.

Historically, the conversation about natural resource security has largely focused on energy in the Middle East, but minerals will be the next important chapter, particularly for those critical to the green industrial revolution. As the energy transition gathers pace, there will be as many price implications as there are geopolitical implications.

Such trends may drive a new round of investable commodities on futures exchanges and in index investment alike, but the geopolitics of tomorrow’s commodity markets may lie in critical minerals sourced in critical places. Understanding that future matters more than ever, and it requires the sort of long-term thinking that’s often scarce in today’s investment world.