Putin’s “quiet wheat war” on the global commodity market: food price weaponization

There are considerable bottlenecks in global food supply chains: Russia and Ukraine contributed significantly to fill these voids before the war. This resulted in the sound positions of these countries in separate food market segments (wheat, barley, sunflower oil, etc.)

Some Middle East (Lebanon, Yemen, etc.) and African (Egypt, Libya, etc.) countries are highly dependent on Russia’s and Ukraine’s food imports. Given the higher share of food expenses in their households’ budgets, public finance weakened by Covid-19 pandemic, a rise in food price potentially may have disastrous economic implications here.

Russia’s authority tries to exploit the described vulnerabilities to trigger political instability and social unrest in retaliation for the imposition of Western sanctions. (“the Arab Spring 2.0” scenario).

There are no economic fundamental reasons for famine in the Global South because of food scarcity, but price increase expectations become a self-fulfilled prophecy “wheat is all about fear.”. Putin is skillful in manipulating such fears.

Protectionism and defragmentation are a common response to such challenges nowadays: 23 countries from Kazakhstan to Kuwait have declared severe restrictions on food exports that cover 10% of globally traded calories.

Russia is extremely successful in exploiting its bargaining power, while using supply chain bottlenecks in the global food (as well as in fossil fuels) market. To illustrate this, the part of world trade between Russia and countries that voted for the United Nations resolution, condemning Russia’s invasion in Ukraine, accounts for 2 % of global trade.

The latest food price increase is the litmus test of the central banks’ overreliance on inflation targeting regime. It’s an irony, but President Putin has succeeded in the central bank governors’ job of managing inflation expectations, on at least commodity price boosting.

An interesting tug-of-war between the West and Russia is observed nowadays: it may be pictured in terms of “sanctions against commodity wars”. As for now, it is unclear who will win this geoeconomic game.

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