Commodities and Geopolitics
Commodity markets (energy, metals, agriculture) sit at the intersection of economics and geopolitics. Supply shocks caused by wars, sanctions, or natural disasters can trigger inflation, recessions, and major shifts in global financial markets.
Last updated: 29 July 2026
Prerequisites
PrerequisitesThis sheet requires an understanding of the economic links between countries (the preceding sheet), of supply and demand, of monetary policy and of international trade. It explores the specific link between natural resources and geopolitical power.
Definition
DefinitionCommodities are standardised, interchangeable goods, extracted or produced in bulk, that serve as inputs to the world economy. They fall into four categories: energy (oil, gas, coal), metals (gold, copper, lithium, rare earths), agricultural products (wheat, corn, soybeans, coffee) and softs (cotton, rubber, timber).
The link between commodities and geopolitics runs both ways. On one side, geopolitics moves prices: a war, an embargo or a set of sanctions can send quotations leaping overnight. On the other, control of resources confers geopolitical power: oil for OPEC, gas for Russia, rare earths for China.
Why it matters
Commodities — energy, metals and agricultural products — account for around a quarter of world merchandise trade (20 to 30% depending on the year, the share swelling with energy prices; WTO statistics). Oil alone represents more than 2 trillion dollars a year. Control of these resources shapes the balance of power between nations.
OPEC controls roughly 40% of world oil production and 80% of proven reserves. Its production decisions bear directly on inflation, growth and monetary policy in every importing country. Jeffrey Sachs documented how that dependence creates structural vulnerabilities for importing economies (Europe, Japan, India).
China controls 60% of world rare earth production, essential to green technologies (wind turbines, batteries, electric vehicles), to semiconductors and to the defence industry. That near-monopoly gives it considerable geopolitical leverage, as its temporary embargo on exports to Japan in 2010 demonstrated.
Key points
Commodity prices are set by two forces: economic fundamentals (supply, demand, inventories) and geopolitical events (wars, sanctions, regime change). The second can produce abrupt and unpredictable swings
Oil remains the most geopolitically sensitive commodity. The Strait of Hormuz (21% of world oil trade) and the Suez Canal (10% of world trade) are strategic chokepoints whose blockage sends prices up immediately
The energy transition is creating new geopolitical dependencies. Lithium, cobalt and copper are progressively replacing oil as the strategic resources. The "lithium triangle" (Argentina, Bolivia, Chile) holds more than half of identified world resources — resources, not reserves: the distinction is set out under common mistakes
Gold occupies a unique position: a commodity and a safe haven at once. In periods of geopolitical tension it decouples from other commodities and rises independently of physical supply and demand
The resource curse shows that an abundance of commodities is not synonymous with prosperity. Without solid institutions, resource rent feeds corruption and weakens the rest of the economy
Concrete examples
Examples1973: the OPEC oil embargo quadruples the price of a barrel (from $3 to $12), producing stagflation in Western economies and the first global post-war recession
2022: Russia's invasion of Ukraine sends European natural gas from €80 to €340 per MWh (+325%), wheat up 60% (Ukraine and Russia together account for 30% of world exports), and crude above $130. Europe accelerates its energy diversification towards American LNG and renewables
2020-25: the energy transition triples lithium demand by volume (batteries for electric vehicles), yet lithium carbonate prices collapsed by roughly 80% between late 2022 and 2024 on the back of overproduction. The episode illustrates a key principle: rising demand does not mean rising prices if supply adjusts faster. Cobalt and copper are reproducing, on a 21st-century scale, the geopolitical dynamic oil had in the 20th
Common mistakes
CautionBelieving commodity prices depend on supply and demand alone. In practice a tweet, a political speech or a military escalation can move them 10% in a single day
Confusing resources, reserves and production — the fundamental distinction of economic geology. Resources are the quantities identified geologically; reserves, the portion economically and technically exploitable (in the USGS sense); production, what actually comes out of the ground. Lithium illustrates all three tiers: Bolivia holds the largest resources in the world, but its booked reserves are marginal — precisely because it cannot make them exploitable — and its production is negligible; the largest reserves are in Chile, and the leading producer is Australia
Ignoring the shape of the futures curve (contango versus backwardation) when investing in commodity ETFs. A market in permanent contango erodes the value of funds that roll their futures contracts
Underestimating the response time of supply. Opening a new copper or lithium mine takes five to ten years. When demand rises abruptly, supply cannot follow, which prolongs periods of high prices
Anecdote
In 1956, the Suez crisis demonstrated that control of trade routes is as strategic as control of the resources themselves. When Nasser nationalised the canal, the response came from three parties: Israel invaded the Sinai first, then France and the United Kingdom — which had secretly coordinated the operation with it (the Protocol of Sèvres) — intervened on the pretext of separating the belligerents. American pressure, financial above all, exerted on sterling, together with Soviet threats, forced all of them to back down. The episode marked the shift of oil power towards the Middle East and the United States.
Academic sources
ReferencesJeffrey Sachs — The End of Poverty (2005): natural resources and development
Michael Ross — The Oil Curse (2012): oil, institutions and democracy
Richard Auty — Sustaining Development in Mineral Economies (1993): the resource curse
Daniel Yergin — The Prize (1990): the geopolitical history of oil
Daron Acemoglu & James Robinson — Why Nations Fail (2012): extractive institutions and resources
Market impact
MarketsCommodities are among the most volatile assets and the most sensitive to geopolitical events. In 2022, the Ukrainian conflict sent European gas up 325% and wheat up 60% within weeks. Oil reacts instantly to tension in the Middle East (the Strait of Hormuz carries 21% of world oil trade). Gold serves as a safe haven in periods of geopolitical stress (near flat in 2022 despite a record dollar, +13% in 2023). Commodity ETFs (DBC, GSG) and energy sector equities (TotalEnergies, ExxonMobil) provide exposure to these dynamics. Understanding the commodity-geopolitics link is essential to anticipating imported inflation and sector rotation.