War in Ukraine Turned Commodities Into a Macro Story
Russia's invasion in late February hit a global economy already short of everything, and the price response ran through energy, wheat, fertilizer, and metals at the same time.
Two Exporters, Many Markets
Russia and Ukraine are not large economies by output. They are enormous in specific commodity markets, which is a different thing entirely and the reason the price effect was so broad.
Russia is among the largest exporters of crude oil and natural gas, and a major supplier of palladium, nickel, aluminum, and fertilizer inputs. Ukraine and Russia together account for a very large share of globally traded wheat, and Ukraine is a leading exporter of sunflower oil and corn. When those flows are disrupted or sanctioned, the effect is not confined to the region.
Why Commodity Prices Move So Violently
The mechanism is inelasticity on both sides. In the short run, demand for wheat, diesel, and fertilizer barely responds to price, because there is no substitute available this month. People eat, trucks run, and crops are planted on a calendar.
Supply is equally inelastic. You cannot drill a well, build a refinery, or grow a wheat crop in response to a price signal within a quarter. When both curves are steep, a modest change in available quantity produces an enormous change in price. That is the whole explanation for why commodity markets look unhinged during a supply shock while equity markets look merely nervous.
When neither buyers nor sellers can respond quickly, price does all the adjusting. That is why a few percent of missing supply can move a market by half.
The Fertilizer Chain
The least covered and most consequential link ran through fertilizer. Nitrogen fertilizer is manufactured using natural gas as the primary feedstock, so a gas price shock is a fertilizer cost shock with a short lag. Russia and Belarus were also major potash suppliers.
Fertilizer costs feed into planting decisions, planting decisions feed into harvest volumes, and harvest volumes feed into food prices a season or more later. The result is that an energy shock in early 2022 was still propagating into food prices well into 2023, particularly in import dependent developing economies where food is a large share of household spending.
What It Did to the Inflation Problem
The timing was the worst possible. Central banks had already concluded that inflation was broader than bottlenecks and had begun tightening. A commodity shock layered a genuine supply driven price increase on top of an existing demand driven one.
That combination is the hardest case in monetary policy. Raising rates does nothing to produce more wheat or gas. It works by reducing demand, which means the tool addresses only part of the problem while imposing its full cost on employment and growth. Policymakers had to decide whether to look through a supply shock, as textbooks suggest, while inflation expectations were already drifting upward, which textbooks warn against. There was no clean answer.
The Structural Consequence
The durable change was in how governments think about energy dependence. Europe had built an energy system around cheap piped Russian gas, which was economically rational and strategically fragile. Replacing it meant liquefied natural gas terminals, alternative suppliers, and accelerated renewable buildout, all more expensive than the arrangement it replaced.
The general lesson applies well beyond energy. Optimizing a supply chain purely on cost embeds a dependency, and that dependency is a position you hold whether or not you priced it.
The Bottom Line
A war between two commodity exporters repriced inputs worldwide because commodity supply and demand both respond slowly. The shock also proved that the cheapest supplier and the safest supplier are not always the same one.