 Sheep graze in Kherson Oblast, Ukraine, on Jan. 19. (Cristopher Occhicone/Bloomberg News) | More than 100,000 Russian troops are massed near Ukraine amid a flurry of diplomatic efforts to defuse the prospect of conflict. Should peace not prevail, western-gazing Ukrainians would pay the highest price. But in a worst-case scenario, the cost of a major Russian invasion of Ukraine — one of the world's largest grain exporters — could ripple across the globe, driving up already surging food prices and increasing the risk of social unrest well beyond Eastern Europe. As tensions mount, one focus of economic concern is the global impact of extreme Western sanctions on Russia — a major exporter of agricultural goods, metals and fuel, particularly to Western Europe and China. Should the crisis escalate to the point of triggering staggering sanctions, the blow could spike prices and worsen global supply chain woes by tightening markets for commodities including natural gas and metals such as nickel, copper and platinum used in the manufacturing of everything from cars to spacecrafts. Yet perhaps just as crucially, a major Russian incursion would also affect the flow of goods from Ukraine, the world's fourth-largest supplier of wheat and corn. A major disruption of Ukrainian exports — especially in conjunction with any interruption in even larger Russian grain exports — could pile onto a global inflationary cycle that in many countries is already the worst in decades. Concern is especially focused on fuel and food. Last year, global food prices surged 28.1 percent to their highest level in a decade, according to the United Nation's food agency. Worries of war have already driven U.S. corn futures to their highest levels since June and sent wheat futures to two-month highs before a recent easing. Over the past 20 years, bountiful Ukrainian harvests boosted the country's role as a global breadbasket. Some of its biggest clients are economically battered, war-torn or otherwise fragile states in the Middle East and Africa, including Yemen, Lebanon and Libya, where grain shortages or cost surges could not only deepen misery but churn up unpredictable social consequences. Andrey Sizov, head of Russia-based consultancy SovEcon, told me this week that he still sees the risk of a Russian invasion as low. But should one happen, and exports are deeply disrupted, "that would mean big problems for all large food importers, especially in northern Africa, Iran, Sudan, Afghanistan and Egypt. … The risk in all those countries of social unrest increases under this scenario." Alex Smith, a food and agriculture analyst at the Breakthrough Institute, writes in Foreign Policy that threats to Ukraine's wheat exports pose the greatest risk to global food security. Its customers include China and the European Union, "but the developing world is where Ukrainian wheat has become an essential import," he wrote. Smith noted that in 2020, half of all wheat consumed in Lebanon — a country critically dependent on bread as a staple and slammed by a crippling economic crisis — came from Ukraine. Yemen and Libya respectively import 22 percent and 43 percent of their total wheat consumption from Ukraine. In 2020, Ukraine also supplied more than 20 percent of wheat consumption in Malaysia, Indonesia and Bangladesh. For Egypt — a major Ukrainian buyer of wheat and a nation where rising food prices sparked massive street riots in 1977 — sourcing challenges and price hikes would come just as the government is seeking to roll back all-important bread subsidies. "Of the 14 countries that rely on Ukrainian imports for more than 10 percent of their wheat consumption, a significant number already face food insecurity from ongoing political instability or outright violence," Smith wrote. It's worth noting that fears of similar disruptions also ran high during Russia's covert, and later overt, aggression against Ukraine nearly a decade ago that resulted in the annexation of Crimea and the occupation by Russia-backed separatists of the eastern Donbas region. Fears then, Sizov told me, turned out to be overblown, with markets recovering rapidly. That was true in large part because of the limited nature of the Russian incursion. A full-on invasion, however, could be different, with the geography of Ukrainian agricultural production placing the disruption risk especially high. A large part of Ukraine's wheat, Smith notes, is grown in Kharkiv, Dnipropetrovsk, Zaporizhia and Kherson oblasts, or regions, located just beyond the parts of eastern Ukraine that are already largely under the control of Russian-backed separatists. That puts them in the early path of a Russian march to the west. Smith wrote that if an attack on Ukraine turns into "a Russian land grab," then wheat production could plummet amid farmers fleeing and the destruction of infrastructure. He adds: "Whoever controls the land will ultimately extract its riches, but if conditions in the Russian-controlled eastern parts of Ukraine are any guide, instability and paralysis may lie over the region and seriously impact production far beyond the initial invasion." Given the agricultural cycle, a good chunk of Ukraine's seasonal corn exports — much of it purchased by China — have already shipped. But Peter Meyer, head of grains at S&P Global Platts, told me there's word on the street that the Chinese have been quietly shopping around for U.S. corn in the event the Ukrainians can't make good on deliveries later this year. One short-term concern, he said, is whether Russia would try to put a "stranglehold" on Ukraine's economy by blockading Black Sea exports. Longer term, images "of Ukrainian housewives buying guns" and questions over whether farmers might abandoned their fields to "fight," have also sowed doubts over Ukraine's 2022 corn crop, which, Meyer said, "needs to be planted in the next few months." The impact on global consumers could be far worse should the Russians seek to take steps — including higher export tariffs — to corral their own wheat production to ensure food security during any prospective war. In that case, Americans are almost surely looking at higher supermarket prices. How much higher is anybody's guess. "But you'd feel it," Meyer said. | 
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