Chapter 3: Fragmentation and commodity markets: vulnerabilities and risks
Russia’s invasion of Ukraine has caused major commodity markets to fragment, and geopolitical tensions could make the situation worse. Chapter 3 examines how further disruptions in commodity trading could affect commodity prices, economic activity and the energy transition. The chapter reaches four conclusions. First, commodities are particularly vulnerable to fragmentation due to their concentrated production, hard-to-replace consumption, and critical role for technologies. Second, increased fragmentation would lead to sharp swings in commodity prices and more volatility. Third, disruptions to commodity trade would have very uneven impacts across countries, even if global losses appear moderate given offsetting effects across countries. Low-income countries would bear a disproportionate share of the economic cost, due to their heavy dependence on agricultural imports. Fourth, the fragmentation of mineral markets would make the energy transition more costly, reducing investments in renewable energy and electric vehicles by a third by 2030 in an illustrative scenario. A green corridor agreement could guarantee the international flow of critical minerals. Similar deals on essential food items could stabilize agricultural markets. Such agreements would safeguard global goals to prevent climate change and food insecurity.
