Chapter 3: Fragmentation and commodity markets: vulnerabilities and risks
Russia’s invasion of Ukraine has splintered key commodity markets, and geopolitical tensions could make matters worse. Chapter 3 considers how further disruptions to commodity trade could affect commodity prices, economic activity, and the energy transition. This chapter reaches his four conclusions. First, goods are particularly vulnerable to fragmentation because of their central role in intensive production, hard-to-substitute consumption, and technology. Second, further fragmentation will cause greater fluctuations and greater volatility in commodity prices. Third, disruptions to commodity trade will have a very uneven impact on countries, but global losses appear to be modest given offsetting effects between countries. Low-income countries are more dependent on agricultural imports and therefore bear a disproportionate share of the economic costs. Fourth, mineral market fragmentation will make the energy transition more costly, with investment in renewable energy and electric vehicles falling by one-third by 2030 in an exemplary scenario. Green Corridor Agreements could ensure international flows of critical minerals. A similar agreement for essential food products could stabilize agricultural markets. Such an agreement would protect global goals to avoid climate change and food insecurity.
