Tension on the Steppe | S&P Global


Geopolitical concerns

Russian military drills on Ukraine border spark fears over commodity prices

The hesitant NATO talks and Russian military drills on the Ukrainian border on January 14 have again raised concerns about a possible invasion of the gas transit hub and fears of greater gas price volatility. raw materials.

“The chances of military action in Ukraine increased on January 13 as Russia concluded a week of ‘unsuccessful’ talks with a warning that diplomacy could soon come to an end,” according to Paul Sheldon, chief geopolitical adviser for S&P Global. Platts Analytics.

Tensions would persist even if short-term talks prevented military action, Sheldon said, with Russian escalation around Donbass and cyberattacks potentially hitting Russian targets dividing the US and EU over how strong to respond .

Here are the key facts about the potential impact on the commodities sectors:

Trade flows

The transport of Russian gas through Ukraine has declined in recent years and collapsed in early 2022.

• Of the 109.9 million m3/d that Russia could potentially deliver through its transport agreement with the EU, Ukrainian net outflows averaged only 45.067 million m3/d between 4 and 10 January 2022.

• Ukrainian gas transits to Hungary dwindled to a trickle at the end of 2021 after the opening of a new interconnector linking Hungary to Serbia. This allowed larger Russian volumes to be transported via Turkstream across the Black Sea.

• Russia threatened to cut Moldova’s gas supply at the end of October 2021 due to delays in payment for deliveries and soaring European prices. A new five-year supply agreement has been signed between the two starting November 1, 2021, using Ukrainian transit.

• Ukraine ships Russian oil to Slovakia, Hungary and the Czech Republic. The transit of Russian crude through the country for export to the EU was 11.9 million tonnes in 2021, compared to 12.3 million tonnes in 2020, while the transit of oil to Belarus remained unchanged at about 800,000 tons.

• Last year, crude shipments via the southern branch of the Druzhba pipeline network included 5.2 million tonnes, or approximately 104,427 bpd, to Slovakia; 3.4 million tonnes, or approximately 68,279 bopd, to Hungary; and 3.4 million tonnes, or around 68,279 bpd, to the Czech Republic.

Ukraine is one of the largest grain exporters in the world, and any disruption in supplies could impact food security and prices.

• Ukraine represents approximately 13% of world corn exports, being the world’s fourth largest exporter and by far the leading European exporter. Half of its exports go to the EU, with China being another major importer. A large part of these exports is used for animal feed, with biofuels also likely to account for a significant share.

• The country accounts for about a tenth of global wheat exports, which have risen 27% so far in the 2021-22 marketing year (July to end of June) to 16.1 million tonnes, Russia neighboring country which has increased its export taxes.

• S&P Global Platts Analytics predicted that Ukraine would export 22.5 million tonnes of wheat in the 2021-22 marketing year.

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