The last few months have primarily focused on the tensions between Russia and Ukraine, and the violent conflict has escalated in recent weeks. Now, the U.S. and European Union are imposing various sanctions on Russia in an effort to get President Vladimir Putin to play ball. These actions have yet to affect the European nation. Instead, Putin has retaliated with sanctions of his own, creating something of a legislative battle, potentially creating major headwinds for certain commodities [for more commodity news and analysis subscribe to our free newsletter].
The Sanction Games
Over the last several weeks and months, a number of sanctions have been imposed on the Russians, only to see Putin swiftly respond. The most recent response included a harsh ban on imports of fruit, vegetables, meat, fish, milk, and dairy products from the U.S. and EU among other nations. That ban will be effective for one year. On top of that, Russia is reportedly considering restricting any commercial flights over their territory; this would make popular flights from Europe to Asia far longer and more costly if they were forced to avoid the largest country (by square miles) in the world [see also A Deeper Look At Russia’s Commodity Industry].
The legislation has interrupted the normal supply and demand chains that keep the commodity world afloat, making it a bit harder to predict how these cyclical assets will behave in the near future. With that being said, there are a few hard assets that come in to play when it comes to the war of sanctions between Russia and the West:
Corn: Russia imports just 0.01% of the U.S.’s total corn exports, but it is still worth keeping an eye on [see also 13 Ways Corn Is Used In Our Everyday Lives].- Soybeans: Though Russia is not a major importer of U.S. soybeans in the grand scheme of things, it still rakes in approximately $160 million of the commodity every year from the U.S., which could put a small dent in prices.
- Livestock: Poultry and pork is where the U.S. could take a hit, as these are commodities that Russia is fond of importing, along with other forms of livestock.
- Natural Gas: As U.S. production of natural gas ramps up, some have suggested that the U.S. could begin exporting it to make up for Russia’s production. There has been a lot of clash over this idea, and it would probably be years away from even happening.
The Bottom Line
Though there is not one specific product that would be significantly damaged by Russia’s sanctions, they still accounted for approximately 10% (or $1.3 billion) of all U.S. agricultural exports last year. It should also be noted that the U.S. imports $27 billion worth of goods from Russia on an annual basis, which could cause some hiccups if the sanctions remain. For now, the situation is a tough one to predict, but it demands a closer look from investors, especially those in the commodity world.
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Disclosure: No positions at time of writing.
