Most of the commodities markets’ focus has been on the sovereign debt crisis in Europe and the worry of a possible hard landing in China.
While these are the main risks facing the global economy, other issues are out there; issues which, in the absence of these very immediate concerns, would be taking greater prominence than they are. One such risk, sometimes termed a tail riskâ€ by commodities markets, is Russia.
According to the CIA, in 2009 Russia was the world’s largest exporter of natural gas, the second-largest exporter of oil, and the third-largest exporter of steel and primary aluminum, not to mention also being a major export supplier of metals such as nickel, platinum, chromium, cobalt, titanium and agricultural raw materials including wheat and barley. From a commodities point of view, Russia is arguably more crucial than Iran or Libya were to the oil market, if for no other reason than the country is a major exporter of so much more than just oil.
“Big deal!” you may say; Russia is not a revolutionary Libya or a nuclear-armed Iran facing Western sanctions. No, but the unrest that swept the Middle East this summer has touched many other parts of the world. The FT reported that early last month, tens of thousands of people took to the streets in Moscow to demand a rerun of elections. It was Russia’s largest opposition demonstration since Boris Yeltsin took on the Supreme Soviet in 1993.
The fear, so far low key, is that political unrest in Russia could intensify in the run-up to the presidential elections on March 4, and after that Vladimir Putin, the prime minister, is likely to become president again. The current wave of demonstrations is rejecting the Kremlin’s authoritarian model of managed democracy,â€ by which Mr. Putin has governed the country for more than a decade.
Six months ago his position seemed unassailable, but today cracks are beginning to show, and just as with Middle Eastern dictators, opposition is starting in the streets. Putin’s authoritarian ruling party holds complete control of the media and will be ruthless in suppressing opposition. Unseating his return to the presidency would require huge opposition. With an iron grip on the military, media and judiciary, Putin is no more than rattled at the moment.
But the unrest could spread and the consequences for global commodity prices could be significant if they look like seriously disrupting the status quo. Apart from price, supply security is also an issue. Over two-thirds of Russian exports to the United States are fuels, mineral oil, or metals., while exports elsewhere are overwhelmingly commodity-based — with oil, natural gas, metals, and timber comprising nearly 90 percent of Russian exports, according to Russian state statistics.
They said Tunisia was an isolated situation, that Libya was a case of tribal unrest, and that the riots on Cairo’s streets were no more than popular opposition to food prices. But as regime after regime has fallen — sometimes with violent conflict — nowhere is looking totally secure. Syria will be next, and while Russia is not the brutal regime of Libya or Syria, Russia’s people have suffered a growing sense of disenfranchisement as Vladimir Putin’s brand of cronyism and corruption has spread to every facet of government and business.
The president-to-be doesn’t need to fail to impact prices; he only needs to look at risk of failing. Russia could be one to watch in 2012.