Trade in key commodities remained “remarkably resilient” during 2022 despite the fallout of Russia’s invasion of Ukraine, with importers finding alternative sourcing markets for agri goods, metals and fuels, World Trade Organization (WTO) research finds.
The WTO estimated in April 2022 that the war would halve growth in the trade of goods, from nearly 5% to less than 3%, warning that prospects for the global economy had “darkened” in the wake of the conflict. Its most pessimistic scenarios estimated trade growth could slow to just 0.5%.
However, traders of commodities expected to be “significantly affected” by the war – including wheat, maize, sunflower products, fertiliser, fuels and palladium – have managed to fill the gaps left by Ukraine and Russian-origin goods with imports from elsewhere, it says.
The WTO adds that price increases across key commodities have been less drastic than feared, and that supply chains have remained stable – demonstrated by 4% growth year-on-year in trade in intermediate goods for Q2.
It has not issued a fresh trade growth forecast, but in October revised its prediction upwards to 3.5% – though the outlook for 2023 remains gloomy.
“Despite the devastation we have seen one year on, trade flows remained open,” says WTO chief economist Ralph Ossa.
“We have not seen the worst predictions foreseen at the onset of the war. Sharply higher food prices and supply shortages have not materialised thanks to the openness of the multilateral trading system and the cooperation governments have committed to at the WTO.”
One of the main concerns in the aftermath of Russia’s invasion was whether Ukraine’s sizeable wheat and corn exports would be able to continue, particularly after a blockade on its Black Sea ports, prompting widespread concerns over food security – particularly in developing markets.
A UN-brokered initiative has resulted in exports resuming, but the WTO says importing countries have successfully turned to other sourcing markets.
In 2019, Ethiopia relied on Russia and Ukraine for nearly half of its wheat imports, but during the first 10 months of the conflict those flows dropped by 64% and almost 100% respectively.
Yet during that time, the value of Ethiopia’s wheat imports increased by roughly the same amount as the price of wheat, suggesting flows continued.
“This loss of supply was mostly made up for by increased shipments from the United States (up 21%) and Argentina, for which growth is undefined because the quantity imported in 2021 was zero. Argentina supplied roughly 20% of Ethiopia’s imported wheat in 2022,” the WTO says.
“These examples underscore the importance of having market access to a range of producing countries.”
Ukraine’s exports dropped significantly last year, but the WTO finds that Russia’s exports actually expanded in value terms. Its steepest increases in exports by value were in fuels, crude oil and fertiliser, though exports of non-ferrous metals, iron, steel and other minerals plummeted.
The report does not address the price cap imposed on trade in Russian-origin oil, imposed by western powers since December last year, however.
A fact sheet issued by the US Treasury Department last week says the cap is driving down the value of Russian oil exports. Government oil revenues were 60% lower in January 2023 than in March 2022 despite an increase in exports by volume, it says, citing Russian Ministry of Finance data.
“Russia is being forced to sell its flagship crude, Urals, at larger and larger discounts as buyers worldwide use their increased bargaining power against Russian exporters,” it says.
But a February 24 statement signed by several NGOs, including Global Witness, Urgewald and Ukraine’s Razom We Stand, called for the cap to be scrapped on the grounds it is not enforceable in practice.
“Commercially available data shows that in the Far East, western companies are trading Russian oil which is selling above the price cap level. And multiple reports cite Chinese and Indian customs data suggesting that local importers bought Russian crude without a discount, at a similar price to Brent,” it says.
“The cap is proving little more than a G7-approved press release.”