Russia has declared economic war

On Friday Russia announced the recommendation that fertilizer exports be suspended in light of the West’s economic sanctions. This under-report story has potential to do more economic damage than the West has prepared for.

Russia accounts for 11.2% of the total $62.6 billion 2020 export market for fertilizers according to UN Comtrade data. While not an overwhelming share it will most likely have great implication on the global price for fertilizer, and then food. And contributing to the upcoming global fertilizer shortage is the main ingredient to ammonia based nutrients, natural gas. Also well advertised, the Nord Stream 2, has been shut down and nat gas prices are surging, especially in Europe. Stocks are low and any fertilizer manufacturer looking to make their product is going to have to compete with consumers who are just trying to heat their homes. Any extreme shortage might force those companies offline.

When it comes the most impacted countries, the top countries who receive Russian plant food are Brazil, Estonia, China, India, and the US. China on this list will likely not be affected by the ban, assuming their country remains cozy with the Russia. The other countries are in a worse spot. Estonia and the US will likely see the strictest enforcement. The U.S. for obvious reasons. Estonia was one of the original Russian neighbors to join NATO, will likely see their imports trickle to zero. Brazil and India have choices to make. India is famously tiptoeing around criticizing Russia, fertilizer imports likely a factor. Brazil will also have to decide whether they cozy up to keep their Russia imports or go with the West in denouncing Russia.

Russia’s economic declaration of war is likely to achieve two effects. First they are looking to stoke the inflation fire even more, and where it hurts. Fertilizer prices and shortages are going to drive food costs even higher. This basic good we all need has been the source of revolution over history when the price starts to surge and the people rise up. The most recent case of this is in the Arab Spring. The second goal Putin and Russia might be trying to achieve is domestic consumption. Not for the farms but for bombs. Fertilizer is an oxidizers and can be used in explosives. Putin may seen the need to ramp up bomb production as they war drags on and is prioritizing bullets over butter.

Overall this fertilizer dynamic should be watched closely. Food price hyperinflation leading to revolution and India and Brazil’s reaction will shape the geopolitics of this current conflict. We could see this destabilize countries and force larger ones to pick sides.