According to Jose Carlos Martins, former chief executive of Vale Ferrous and Strategy, the war in Ukraine could lead to a global recession.
“Russia and Ukraine are the two main players. Replacing Russian supplies will take too long,” Martins said in an interview with MINING.COM.
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Russia earns more than $1 billion a day from oil and gas exports, most of which go to Europe. The continent receives almost 40% of its natural gas and 25% of its oil from Russia.
Commodity market of Russia - Bloomberg
On April 8, the European Union agreed to a series of new sanctions against Russia, including a ban on coal imports, which amounted to 48.7 million tons in 2021.
Martins, who currently runs the consulting firm Neelix, points to the 1990s as a context for understanding the impact of conflict on the global economy.
“In 1991, the USSR was the second most industrialized country in the world, but it was a controlled economy. The role of industry in the economy of the USSR was enormous. When the Soviet Union collapsed, industry, heavily supported by the defense, also collapsed,” Martins said.
“All surplus raw materials and energy went abroad, mainly to Europe, which led to an increase in the supply of goods. Prices leveled out only ten years later, when China entered the market,” he said.
According to the former director of Vale, the opposite is happening now.
“The West will not be able to replace Russian oil or gas exports anytime soon. Russia is also a major exporter of nickel, palladium and aluminum.”
“Replacing Russian supplies will take time. For example, environmental concerns and climate factors are increasingly delaying new mining projects. There is only one way to set up the market and that is to provoke a recession.”
“If Russia does not return to the market, it is impossible to meet demand. Prices will rise, we will have inflation, and global interest rates will rise to curb consumption.”
Commodity prices soared to record highs last month as Russia's invasion of Ukraine shocked markets, pushing up prices on everything from oil to wheat.
According to Martins, the short-term scenario is good for commodities, but a correction will be needed in the medium term.
A recent Wood Mackenzie report says global economic growth could slow to 2.5% year-on-year in 2022 and 0.7% in 2023 due to the Russian-Ukrainian war.
