Facing global geopolitical turmoil triggered by the war in Ukraine, Russia has attempted to resist the sweeping sanctions from almost the entire Western world. In addition to military operations, Russia is now using energy and food as its leverage, strengthening the "weaponization" of both of these as its strategic resources.
As an important energy producer and exporter in the world, Russia will and does weaponize its energy export. Furthermore, Europe is dependent on its energy, particularly natural gas. Russia exports about 4 million to 5 million barrels a day of crude oil and 2 million to 3 million barrels of refined oil. In 2021, Russia's crude oil production was about 520 million tons, ranking after the United States and Saudi Arabia. Its natural gas production was 761 billion cubic meters, ranking second in the world, accounting for about 18% of the world's total natural gas production. In 2021, Russia exported about 230 million tons of oil, second only to Saudi Arabia. Its natural gas exports were about 200 billion cubic meters, ranking first in the world. Europe is the main destination of Russia's energy exports. Russia's oil and natural gas exports to Europe accounted for 50% and 78% of its total exports, respectively.
As Europe is unlikely to end its dependency on Russia's energy in the short term, this makes Europe appear to be holding back when it comes to imposing sanctions on Russia. For instance, the sixth round of sanctions against Russia passed by the EU recently exempted certain Russian pipeline oil exports from the oil embargo. Russia also took advantage of Europe's dependence on its natural gas by launching a "ruble settlement order" that linked the ruble exchange rate to natural gas exports, at least nominally maintaining the ruble exchange rate. Such "weaponization" of energy has had a certain effect, where it successfully resists the West's attempt to collapse the ruble.
The "weaponization" of energy will have a profound impact on the global energy industry. Researchers at ANBOUND have previously pointed out that the war in Ukraine has led to a "great reset" of the global energy industry. The so-called "great reset" refers to the major adjustments in global energy production, trading, transportation, consumption, investment, and financial markets under the stimulation of the Russia-Ukraine geopolitical crisis. This system adjustment has changed the past global energy field. The existing development patterns and trends will bring about the systematic reconfiguration of the global energy industry and market. Such a major change, in a way, can be considered an extension of the "weaponization" effect of energy.
In addition to the use of energy as a strategic tool, the idea of "weaponizing" food has also been weighed by Russia. However, relevant ideas and actions are still in progress, and no clear systematic plan has yet to be formed. The introduction of the "ruble settlement order" for natural gas has made the sanctions against Russia less effective than the West thought, and now Russia hopes to utilize grain and fertilizer for such a purpose as well. According to Russia's news agency TASS, Andrey Klishas, the Chairman of the Russian Federation Council Committee on Constitutional Legislation and State Building, recently expressed his support for the use of ruble settlement order for food and fertilizer supply, saying that "food and fertilizer should be paid in rubles".
Under the current state of war, Russia does indeed have a certain ability to influence the global grain market.
Russia is currently the world's largest exporter of wheat, accounting for about 16.9% of global exports in 2021. The combined annual wheat exports of Russia and Ukraine (about 60 million tons) were equivalent to 30% of the world's total exports. Corn exports (about 38 million tons) accounted for 20% of total global exports. Ukraine, in particular, exported 23.1 million tons of corn, 16.6 million tons of wheat and 4.2 million tons of barley in the 2020/2021 season, making it the world's second-largest grain exporter after the United States in total exports of all grains. In addition to barley, Russia and Ukraine provide one-third of the world's grain exports, and this volume also makes the market highly concerned about the security of the global food supply.
The war in Ukraine has directly threatened the export of food by the two countries. According to Arkady Zlochevsky, chairman of the Russian Grain Union, Russia's grain exports in the 2022-2023 agricultural year (starting from July 1) may reach 55 million tons. Zlochevsky estimates that exports in 2023 could easily reach 50 million tons or 55 million tons. Russia's current grain harvest is about 120-122 million tons (including 80 million tons of wheat). This means, in theory, Russia can control about 50 million to 55 million tons of grain exports.
There is also a considerable amount of Ukraine's grain production and exports. Ukraine produced approximately 33 million tons of wheat in 2021. In the same year, it replaced Brazil as the world's third-largest corn exporter, with an export volume of about 32 million tons, accounting for about 16% of the world's total export volume and 80% of its own corn production. Due to the war, Ukraine may have completed as little as 50% of its normal spring planting area this year. Even if it is optimistically estimated that Ukraine can complete 70% of the spring planting area this year, based on the country's corn production of about 42 million tons in 2021, it will lose more than 10 million tons of external supply. In terms of wheat production, if a 20% loss is calculated, the war has affected more than 6 million tons of wheat supply. In addition, Ukraine currently has difficulty exporting 25 million tons of grain to the international market due to Russia's control of its shipping routes.
As food is the most essential necessity, the impact of the food crisis will be quite severe. Affected by the war in Ukraine, the list of countries putting a halt on food export has continued to grow. Countries including Argentina, Algeria, Iran, Kazakhstan, Turkey, Serbia, Tunisia, and Kuwait have restricted exports of major grains and crops, from staples such as corn, flour, rye, barley, to soybeans, animal oils, vegetable oils, salt, sugar, to vegetable, potatoes, eggplants, tomatoes, onions, and all kinds of meat. A study by the International Food Policy Research Institute (IFPRI) shows that after the outbreak of the Russia-Ukraine crisis, the global share of restricted food trade (measured in calories) has increased significantly. The current restricted share has risen to 17%, comparable to the level during the 2007-2008 global food and energy crisis. With food prices already high in 2021 due to COVID-related supply chain disruptions and droughts that reduced production, the Russia-Ukraine conflict has caused an even more critical impact on global food markets. As the Russia-Ukraine conflict continues, the possibility of food shortages, especially grain and vegetable oil shortages, will lead to more countries restricting food trade.
When the international food market becomes increasingly fragile, Russia's "weaponization" of food and fertilizers will further exacerbate the tension of global food supply. International Monetary Fund (IMF) managing director Kristalina Georgieva said that as food prices continue to rise, "the anxiety about access to food at a reasonable price, globally, is hitting the roof".
UN Secretary-General António Guterres recently stated that, "let's be clear: there is no effective solution to the food crisis without reintegrating Ukraine's food production, as well as the food and fertilizer produced by Russia and Belarus, into world markets -- despite the war … Russian food and fertilizers must have unrestricted access to world markets without indirect impediments".
It is worth noting that Russian President Vladimir Putin held a telephone meeting with French President Emmanuel Macron and German Chancellor Olaf Scholz on May 28. Putin said that Russia is willing to discuss the possibility of allowing Ukraine to resume the transportation of grain from the Black Sea ports, as well as Russia increasing its fertilizers. and agricultural supply to ease tensions in global food markets, but this will require Western countries to lift related sanctions. Putin's meaning is obvious, Russia can increase the export of food and fertilizers between Russia and Ukraine, with the condition of relaxing the sanctions imposed by the West. In a state of war, the food issue has become highly associated with geopolitics and becomes a strategic "weapon".
Researchers at ANBOUND estimate that in the short term, Russia will maintain a significant role in the global market within the two strategic resource areas of energy (oil, natural gas) and food. These two areas will become the twin bargaining chips for Russia to exert its influence on the world and compete with Western countries. As long as the world outside Russia fails to complete the transformation of energy and food supply and demand systems, the "weaponization" effect of energy and food will always exist.
Final analysis conclusion:
In these turbulent times, geopolitics dominates the livelihoods and fortunes of tens, if not hundreds, of millions of people. If the world experiences a rare cold winter at the end of 2022, we may see tragic, chilling scenes of starvation and death, not only in poorer countries, but also in developed Europe.
