Geopolitical Tensions and Their Historical Impact on Commodity Markets

This article is Part 1 of a two-part series exploring how geopolitical tensions shape the commodity markets, historically and in the present day.

In today’s interconnected world, commodity markets are no longer shaped solely by supply and demand. Geopolitical tensions — triggered by wars, trade disputes, sanctions, or regime shifts — have historically disrupted trade flows, increased volatility, and changed long-term market dynamics.

From the rise of China’s commodity demand to the aftermath of the Cold War, these turning points offer a clear lesson: risk in commodity trading is a strategic factor that demands continuous attention.

The 1973 Oil Crisis and the Rise of Energy Security

One of the most defining geopolitical shocks in commodity market history occurred in 1973, when members of the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed an oil embargo on nations supporting Israel during the Yom Kippur War — including the United States, Canada, Japan, and much of Western Europe. What followed was a global energy crisis resulting in quadrupled oil prices and the transformation of how the world understood commodity risk.

According to historical data from the U.S. Energy Information Administration (EIA), the price of crude oil rose from around $3 per barrel in 1972 to nearly $12 per barrel by the end of 1974, marking a 300%+ increase in just over a year. The sudden price shock rippled through the global economy, contributing to widespread inflation, economic stagnation in the West, and a reordering of geopolitical alliances.

Strategic and Economic Aftershocks

The macroeconomic consequences were profound. The embargo raised prices and upended assumptions about how inflation and growth were linked. Most economists had not seriously considered the possibility that inflation and unemployment could rise simultaneously. But that’s precisely what occurred in the aftermath of the 1973 oil shock: a phenomenon that became known as stagflation.

In a landmark paper published by the Brookings Institution in 1979, a group of economists documented how the oil crisis challenged conventional economic thinking. They demonstrated that the price shock led to significant declines in industrial output, real wages, and consumer demand, while simultaneously feeding inflation through higher energy and transportation costs. Their analysis provided one of the earliest models showing how supply-side shocks could reverberate through pricing systems and labor markets, undermining monetary policy’s effectiveness.

Impacts on Commodity Markets and Global Trade

The oil crisis also had knock-on effects across other commodity markets. As fuel prices surged, so did the cost of transportation and production for energy-intensive commodities such as aluminum, fertilizer, and grains. Developing countries, many of which were net importers of both oil and food, saw their trade balances deteriorate, leading to a wave of sovereign debt crises in the 1980s.

This event catalyzed a broader awareness of interdependency within commodity systems. Suddenly, energy, agriculture, and metals were no longer siloed markets, they became part of a tightly coupled global ecosystem, vulnerable to political decisions made far beyond traditional market mechanisms.

China’s Economic Opening and the Global Commodities Boom

If the 1973 oil crisis redefined how nations viewed the supply side of commodities, the rise of China restructured global demand.

Beginning in 1978, China’s market reforms under Deng Xiaoping marked a historic pivot from centralized economic planning to gradual market liberalization. These reforms, initially focused on agriculture and light industry, rapidly expanded to manufacturing, infrastructure, and global trade. Over the next three decades, China underwent the most sustained period of economic growth in modern history, averaging 9% annual GDP growth between 1978 and 2018, according to the World Bank.

As a result, China has become the dominant force in global commodity markets. Today, it consumes more than half of the world’s iron ore and coal, is the largest consumer of copper globally, and accounts for approximately 60% of total soybean imports, driven by urbanization, rising meat consumption, and the growing demand for animal feed.

This surge in demand helped trigger the 2000s commodities supercycle, a prolonged period of rising prices and tight supply conditions across energy, metals, and agriculture. Resource-exporting nations, including Brazil, Australia, Chile, and many African countries, experienced record export revenues, investment booms, and, in some cases, political realignment toward trade with China.

The International Monetary Fund (IMF) highlighted how this shift fundamentally altered trade balances: China’s appetite for raw materials created a south-south trade dynamic, linking developing-world exporters to a single large buyer.

Strategic Implications for Commodity Traders

For commodity traders, China’s transformation represented an opportunity and a concentration risk. Prices for many commodities became closely tied to policy decisions made in Beijing, from infrastructure stimulus to environmental restrictions and currency devaluations.

In the early 2010s, regulatory crackdowns in China, including efforts to reduce inefficient steel production and rein in speculative real estate development, often triggered immediate price declines in iron ore and copper futures. Analysts observed that restrictions on shadow banking and industrial overcapacity led to oversupply concerns and softer demand projections, driving metals like iron ore to multi-year lows by 2014. Likewise, slowdowns in the property sector, a major consumer of steel, had direct ripple effects on the prices of related raw materials.

This dependency remains a structural feature of global commodity markets. As long as China continues to drive a significant share of global demand, commodity traders must treat Chinese policy as a core variable, not a peripheral consideration. Ignoring the macro signals from Beijing is a major risk exposure.

The Post-Cold War Era and Market Integration

The collapse of the Soviet Union in 1991 triggered the liberalization of several formerly planned economies. As Russia and Eastern Europe opened their markets, commodity production — particularly in energy and agriculture — expanded, and global trade networks grew more complex.

This period brought greater supply to global markets, including oil and gas from Russia and grain from Ukraine, but also introduced new geopolitical risks tied to unstable governments, regional conflicts, and fragmented governance.

A New Wave of Commodity Supply

Countries such as Russia, Ukraine, Kazakhstan, and Azerbaijan, rich in natural resources, rapidly became key exporters of oil, gas, grains, and metals. Russia, in particular, reestablished itself as one of the world’s top energy suppliers, while Ukraine emerged as a critical node in the global agricultural system.

Between 2016/17 and 2020/21, Ukraine was the fifth-largest wheat exporter globally, holding a 10% share of the market.  In 2021, the market share was approximately 9%.  Despite the ongoing conflict, as of 2023, Ukraine maintained a 7.9% share in global wheat exports, demonstrating resilience in its agricultural sector.   

The liberalization of these economies introduced new forms of geopolitical risk. As countries opened up, they became exposed to the volatility of global markets, currency fluctuations, and political fragility. Many governments lacked strong institutional frameworks to manage sudden capital flows or enforce stable trade regulations.

For commodity traders and energy companies, the post–Cold War era forced a much-needed reevaluation of how geopolitical dynamics should be factored into operational planning. Risk assessments could no longer be based solely on supply-demand fundamentals; they had to account for political regime changes, state capture risks, sanctions regimes, and military conflicts.

The post–Cold War liberalization wave brought new volume and liquidity to global commodity markets and introduced how geopolitical fragility would become a defining feature of 21st-century trade scenarios.

Coming soon: Part 2 of this series explores how modern flashpoints, including the 2025 U.S.–China trade war, the Russia–Ukraine conflict, and instability in the Middle East, are reshaping global commodity flows in real time.