IMF Working Papers

Geoeconomic Fragmentation and Commodity Markets

Author/Editor:

Jorge A Alvarez ; Mehdi Benatiya Andaloussi ; Chiara Maggi ; Alexandre Sollaci ; Martin Stuermer ; Petia Topalova

Publication Date:

October 3, 2023

Electronic Access:

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Summary:

This paper studies the economic impact of fragmentation of commodity trade. We assemble a novel dataset of production and bilateral trade flows of the 48 most important energy, mineral and agricultural commodities. We develop a partial equilibrium framework to assess which commodity markets are most vulnerable in the event of trade disruptions and the economic risks that they pose. We find that commodity trade fragmentation – which has accelerated since Russia’s invasion of Ukraine – could cause large price changes and price volatility for many commodities. Mineral markets critical for the clean energy transition and selected agricultural commodity markets appear among the most vulnerable in the hypothetical segmentation of the world into two geopolitical blocs examined in the paper. Trade disruptions result in heterogeneous impacts on economic surplus across countries. However, due to offsetting effects across commodity producing and consuming countries, surplus losses appear modest at the global level.

Series:

Working Paper No. 2023/201

Subject:

Agricultural commodities Commodities Commodity markets Commodity price fluctuations Financial markets Inflation Prices

Frequency:

regular