What the War on Ukraine Means for Global Food and Energy Security

The war on Ukraine has profoundly rocked global food and energy markets. Although the national economies of Russia and Ukraine rank 11^th and 55^th respectively, in terms of the global supply of critical resources such as energy, food, fertiliser, and minerals, these two countries together are of global importance. Their central role in global supply chains has been thrown into sharp relief by Russia’s invasion of Ukraine on February 24, 2022, and the resulting market unease.

The war on Ukraine, and the Covid-19 pandemic before it, have placed enormous stress on international supply chains, and thrown millions into food and energy insecurity. The world was already facing a cost-of-living squeeze caused by the Covid-19 pandemic as demand for goods outpaced supply, and disruptions occurred in supply chains, driving up inflation globally. Both the pandemic and the war have focused global attention on the fragility of the international trade system and the potential for systemic shocks to rapidly and seriously undermine equitable access to basic goods and services, as well as social stability around the world. The geopolitical consequences arising from the war – including new alliances and a more multipolar world – have the potential to further exacerbate the situation and create enduring systemic risks for economies and societies.

The wider impact on food markets

While the global implications of the Ukraine conflict are still unfolding, the immediate impacts of the crisis on global markets are already well-documented. In the first few days after Russia’s invasion, energy prices spiked and have remained at very high levels since.  Food prices also spiked as markets responded to the reduced flow of grain, oilseeds, and fertilizer from Ukraine and Russia: together, Russia and Ukraine account for over one half of global trade in sunflower oil and seeds, around 30 percent of traded wheat and barley, and about one sixth of traded maize and rapeseed. 

While food prices have come down slightly, they remain at historically high levels and will almost certainly peak again in the coming months: the Russian blockade of Black Sea ports means that last year’s Ukrainian grain harvest is stuck in siloes and, when this year’s crop is harvested over the coming two months, storage capacity will be severely limited. Disruption to international food markets will continue for the foreseeable future. 

Fertilizer markets also face prolonged high prices and supply problems: Russia and Belarus – both subject to international sanctions – are key potash exporters, and high energy prices have pushed up the cost of nitrogenous fertiliser (the production of which is highly energy intensive), further compounding food price rises and decreasing profit margins for producers.

Interruptions to regional shipping around Ukraine – as well as globally – have impeded the flow of goods, adding to existing dislocations in freight availability caused by the COVID-19 pandemic. Freight prices have thus risen, exerting additional upward pressure on consumer prices, while economic sanctions on the cross-border flows of goods and finance are further exacerbating market pressures.

Ripple effects: global food and energy insecurity

But this is just the start. These impacts will bring ripple effects which propagate far beyond their point of origin, known as “cascading risks.” Risk cascades – the second- and third-order impacts of the original hazard and responses to that hazard – can interact across sectoral boundaries as, for example, with energy and food. Their compound effects can lead to overall systemic risks for societies. In globalized trade networks, localized disruption to supply chains rapidly generates widespread international impacts. Of particular concern is the immediate supply of food since most countries rely on fragile supply chains and some may only have a few days’ worth of food within their own borders.

The experience of earlier food price crises indicates that even small interruptions to trade can result in market volatility and rapid price inflation. In 2010, a severe heatwave in Ukraine and Western Russia led to a loss of yields similar in magnitude to those projected for this year. This led to a run on global food commodity markets as countries responded with protectionist export restrictions – of the kind put in place by over 25 countries in response to the current crisis – and led to a very significant food price spike. In turn, this brought about greater global food insecurity and social unrest, sparking food riots in many countries, which also played a role in the Arab Spring revolutions and the consequent geopolitical reconfiguration of the Middle East. We are starting to see similar events again, notably with food riots in Sri Lanka.

Energy markets are also a concern: many countries use more energy than they produce and therefore rely on imports of energy or fuel for domestic use. Russia produces around ten percent of the world’s commercial energy, sales of which are concentrated in major regions such as the EU and China. As with food, a shortfall in energy provision leads to market runs and rapid inflation as actors compete in an ever-shrinking space, while poorly designed policy interventions by nations trying to ensure their own security only add further pressure to global supply and exacerbate price rises. In addition, the closely interconnected nature of energy markets means that disruption to one fuel – in this case gas – affects global prices for other forms of energy.

Impact on governance and stability

The global spikes in energy and food prices resulting from these supply chain disruptions will see many countries struggle with rising food and energy insecurity as well as increased inequality. As food and energy security become more expensive, so does the burden of debt, including sovereign debt in poorer countries. As is already evident in Somalia, which is teetering on the brink of famine, insecurities lead to the displacement of people. Taken together, these conditions create increased inequality, social and civil unrest, and, in extremis, the potential for state failure. This in turn has consequences for the stability of an entire region regarding, for example, interrupted supply chains, the need to deploy peacekeeping forces, or significant flows of aid – all with global consequences far beyond the countries in question.

The conflict in Ukraine and the devastating potential for cascading risks are rapidly becoming clear. Depending on the future of the conflict, and the way that climate change may further tighten grain markets (such as drought in the U.S. Midwest, extreme heat in India, or famine in Somalia), the outlook may grow even worse in the short-term.

In the longer term: new global realignments?

In the medium term, markets will stabilise, but prices are likely to stay significantly higher for months or years to come. This may also be exacerbated by changing geopolitical alliances. The multilateral system has been under pressure for some time, and, in some plausible scenarios, there is the potential for a more bipolar or fragmented world to emerge from the Russian war on Ukraine. The reality of trade in a deglobalizing world, and what it might mean for prices and availability in the longer term, is difficult to predict. But, given the recessionary pressures of today and the potential for ongoing inflation and high prices for years or decades to come, this crisis may well signal a new era and a new economic reality ahead.