Chart Gallery: Russia in the World Economy
Jacob Hess
March 10, 2022
Russia's place in the global economy has been called into question following its choice to invade Ukraine at the end of February. Economic sanctions have been the strongest response by nations who have voiced their disapproval, and the magnitude of the restrictions could collapse the Russian economy (the ruble is down around -64% vs the USD in 2022 as of March 9th). Given how interconnected the global economy is, the looming question is how impactful will the shockwaves from the sanctions and a wounded Russian economy be? Here are 10 charts that describe Russia's place in world markets and which markets could be most affected.
Commodities: Energy
Russia is one of the largest exporters of oil and gas in the world. OPEC estimates that it produced oil and gas at a rate of about 11.2 million b/d, or 10.0 million b/d of crude oil and 1.2 million b/d of condensate/natural gas liquids. As of the time of this report, OPEC estimated Russia would add another 700,000 b/d of oil and gas production by the end of the year.
Russia was China's second largest crude oil supplier in 2021, accounting for around 15.5% of China's total imports, and delivering 1.6 million b/d of crude oil. The immense consumption of Russian oil and gas by China means it is Russia's largest purchaser of energy goods. Pipelines between the two nations run near full capacity and continue to be upgraded.
Russia's next largest energy customer is to the West. It supplies about 36% of the total EU natural gas supply through pipelines that run through Eastern and Central European nations. That supply has recently come into question as European nations have taken a position against Russia's invasion of Ukraine with some even fearing invasion themselves. Allianz sees the largest energy risks in Hungary, Slovakia, and Czechia where a reduction in Russian supply could threaten consumption and, at the very least, cause a surge in prices.
The risk that this war brings to energy markets through a decline in Russian energy exports has become abundantly clear through the recent surge in oil prices. Brent crude oil contracts threatened to trade above $140 for a moment before settling in the $110-115 range as of March 9th.
Commodities: Food & Metals
In addition to energy commodities, Russia is also a major player in the food and metals markets. Russia produces around 18% of the world's wheat and around 15% of the world's fertilizer chemicals. Its actions are also likely to have an impact on the massive amount of wheat and corn that Ukraine is responsible for producing. A prolonged conflict will have significant ramifications in those respective markets.
While Russia's food production is significant on a global scale, the brunt of the pain will be felt by its regional trading partners. In particular, nations in the Middle East and Asia Pacific will likely feel the most pain from supply disruptions in Russian food production. The same can be said about Ukraine's top food trading partners which include the Middle East, Asia Pacific, and the EU. This table also suggests that Africa and North/South America are unlikely to be impacted at the same magnitude.
Several metals markets will be impacted by supply disruptions that come from conflict or the impending economic sanctions. Palladium is vital for automotive production and is already up 26.9% in the last month. Titanium is a critical component of jet engines in the aerospace industry.
Goldman Sachs' chart puts into perspective how significant Russia is to the food and metals markets. While the large, resource-rich nation is most popularly heralded as an oil and gas behemoth, its contribution to precious metals, industrial metals, and wheat markets are comparable in terms of global importance. However, in terms of GDP and overall world trade, the contributions are smaller.
Trading Partners: EU
The EU is Russia's largest trading partner, accounting for 37.3% of the country’s total trade in goods. The largest component of the trade is EU's import of Russian energy goods (outlined in charts above). However, another significant component of the EU-Russia relationship is EU exports of machinery, vehicles, and manufactured goods which include vital technology like electronics and energy machinery. The relationship has shrunk in the last decade, but it would still be a devastating economic casualty if sanctions blocked trading between the two nations.
Of all nations to be affected by a stop in EU-Russia trade, Germany and its strong manufacturing sector would be one of the largest. The goods it receives from Russia in its sea ports is almost equivalent to receipts from Sweden and receipts from China combined.
Trading Partners: US
LPL Financial points out that "Ripple effects from the Russian invasion of Ukraine will be minimal in the U.S. Russia only accounts for roughly 1% of US goods imports." However, this would only protect it from the direct adverse effects of a halt in trading, while surging commodity prices would cause more pain indirectly.
Trade between Russia and the US is mostly one way Russian exports of (energy) minerals totaling about $8.5 billion. Like EU-Russia trade, there is a significant export of machinery, transportation equipment, and other high-tech goods from the US to Russia. However, the size of those exports is around $3 billion, much lower than the EU exports of similar goods worth €58.6 billion.
© MTS Insights 2023