Geopolitical Factors

Commodities are deeply connected to geopolitics. They come from politically diverse regions, flow through strategic chokepoints, and are subject to government policies ranging from export bans to sanctions. Understanding geopolitical dynamics is essential for commodity traders.

Why Geopolitics Matters

Commodity-Geopolitics Connection

GEOPOLITICAL IMPACT CHAIN
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POLITICAL EVENT
     │
     ▼
SUPPLY/DEMAND DISRUPTION
     │
     ▼
TRADE FLOW CHANGES
     │
     ▼
PRICE IMPACT
     │
     ▼
TRADING OPPORTUNITY/RISK

Key Geopolitical Factors

Factor	Description	Impact
Sanctions	Trade restrictions on countries	Supply reduction
Export controls	Government limits on exports	Supply tightening
Tariffs	Import duties	Trade flow shifts
Conflict	War, civil unrest	Supply disruption
Government policy	Energy policy, subsidies	Demand/supply shift
Infrastructure	Strategic chokepoints	Flow constraints

Strategic Chokepoints

Major Maritime Chokepoints

Chokepoint	Daily Flow	Commodities	Risk
Strait of Hormuz	21M bbl	Oil, LNG	Iran tensions
Strait of Malacca	16M bbl	Oil, LNG	Piracy
Suez Canal	5M bbl	All	Blockage (Ever Given)
Bab el-Mandeb	6.5M bbl	Oil, LNG	Houthi attacks
Turkish Straits	3M bbl	Oil, grain	Russia-Ukraine
Panama Canal	1M bbl	All	Drought, capacity

Chokepoint Risk Management

CHOKEPOINT DISRUPTION SCENARIO
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SCENARIO: Strait of Hormuz closure (hypothetical)

IMPACT:
- 21M bbl/day offline
- ~20% of global oil supply
- Price spike: +50-100% possible
- LNG flows disrupted

ALTERNATIVES:
- East-West pipelines (limited capacity)
- Strategic reserves release
- Demand destruction

TRADING RESPONSE:
1. Immediate: Can't trade through strait
2. Source alternatives (non-Gulf)
3. Hedge remaining exposure
4. Customers need supply solutions

PREPARATION:
- Diversify supply routes
- Maintain strategic inventory
- Pre-position alternatives

Sanctions Impact

Current Major Sanctions

Program	Target	Key Restrictions
Russia	Energy, metals	Oil price cap, import bans
Iran	All sectors	Oil exports, financial
Venezuela	Oil sector	Export/import limits
North Korea	All	Complete trade ban

Russia Sanctions Case Study

RUSSIA SANCTIONS IMPACT (2022+)
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PRE-SANCTIONS:
Russia oil exports: ~7M bbl/day
Europe share: ~4M bbl/day
Asia share: ~2M bbl/day

POST-SANCTIONS:
EU ban on seaborne crude
G7 price cap: $60/bbl
Insurance/shipping restrictions

MARKET ADJUSTMENT:
- Russian crude redirected to Asia
- Europe sources from Middle East, US
- Discounts on Russian crude: -$20-40/bbl
- Global refining margins surge

TRADING IMPLICATIONS:
- New arbitrage routes
- India/China as buyers
- Shadow fleet emergence
- Compliance complexity

Government Policies

Export Restrictions

Policy	Example	Market Impact
Export ban	Indonesia nickel ore	Forced processing shift
Export tax	Argentina soybeans	Reduced exports
Export quota	OPEC production	Managed supply
Strategic reserve	US SPR release	Short-term supply

Policy Impact Example

INDONESIA NICKEL EXPORT BAN
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POLICY:
2020: Ban on nickel ore exports
Purpose: Force domestic processing

BEFORE:
Indonesia exported raw ore
China smelted ore

AFTER:
Indonesia builds smelters
Ore stays in Indonesia
Finished nickel exported

MARKET IMPACT:
- Nickel ore prices collapsed in Indonesia
- Processing investment boom
- Global nickel supply shifted
- China ore imports fell
- Indonesia dominates EV battery supply chain

TRADING IMPLICATION:
Physical traders must adapt
New processing relationships needed
Value chain shifted downstream

OPEC and Producer Cartels

OPEC+ Influence

OPEC+ PRODUCTION MANAGEMENT
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MEMBERS:
OPEC: Saudi Arabia, UAE, Iraq, Iran, etc.
Plus: Russia, Kazakhstan, Mexico, etc.

MECHANISM:
Quotas set production levels
Meetings decide cuts/increases
Compliance varies by country

MARKET IMPACT:
OPEC+ controls ~40% of global supply
Production decisions move prices 5-15%

TRADING RESPONSE:
Monitor OPEC meetings closely
Model various quota scenarios
Position ahead of decisions (if view)
Hedge uncertainty with options

Other Producer Groups

Group	Commodity	Mechanism
OPEC+	Oil	Production quotas
GECF	Natural gas	Loose coordination
ICCO	Cocoa	Buffer stocks (historical)
ICO	Coffee	Quotas (historical)

Trade Wars and Tariffs

Impact on Trade Flows

US-CHINA TRADE WAR IMPACT (2018-2020)
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TARIFFS IMPOSED:
US tariffs on Chinese goods
China tariffs on US goods (including soybeans)

SOYBEAN MARKET:
Before: US → China dominant flow
After: Brazil → China; US → other markets

FLOW SHIFTS:
Brazil captured China market share
US found alternative buyers (EU, SE Asia)
Global logistics reorganized

PRICE IMPACT:
US soybean basis collapsed
Brazilian soybean premium rose
Argentina benefited as well

PERMANENT CHANGES:
Brazil investment accelerated
US market share in China never fully recovered
Supply chains diversified

Country Risk Assessment

Risk Factors

COUNTRY RISK FRAMEWORK
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POLITICAL RISK (40%):
- Government stability: Medium
- Policy predictability: Low
- Corruption: High
- Rule of law: Weak

ECONOMIC RISK (30%):
- GDP growth: Moderate
- Inflation: High
- FX reserves: Low
- Debt levels: High

OPERATIONAL RISK (30%):
- Infrastructure: Poor
- Local partner requirements: Yes
- Bureaucracy: High
- Force majeure history: Frequent

OVERALL RATING: Elevated Risk
LIMIT: Reduced country exposure
TERMS: L/C required, PRI considered

Risk Events Timeline

Event	Date	Commodity	Impact
Gulf War I	1990	Oil	+100% spike
Arab Spring	2011	Oil	+30%
Ukraine conflict	2014	Grains, energy	+20-30%
US-China trade war	2018	Soybeans, metals	Flow shifts
COVID-19	2020	All	-50% oil, supply chains
Russia-Ukraine war	2022	Energy, grains	+50% oil, +100% gas
Red Sea attacks	2023-24	Shipping	Freight spikes

Trading Around Geopolitics

Information Sources

Source	Information	Lead Time
Wire services	Breaking news	Real-time
Political consultants	Analysis	Days-weeks
Government contacts	Policy signals	Weeks
Intelligence services	Risk assessment	Ongoing
Physical presence	Ground truth	Real-time

Response Framework

GEOPOLITICAL EVENT RESPONSE
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1. ASSESS
   - What happened?
   - What's the direct impact?
   - How long will it last?

2. PROTECT
   - Secure existing positions
   - Hedge open exposure
   - Contact counterparties

3. OPPORTUNITY
   - New arbitrage routes?
   - Supply alternatives?
   - Pricing dislocations?

4. EXECUTE
   - Act quickly (first mover advantage)
   - Manage risk carefully
   - Document decisions

Key Takeaways

1. Geopolitics directly affects commodity flows — Supply, demand, routes
2. Sanctions reshape markets — Russia 2022 as major example
3. Chokepoints are strategic — Monitor Hormuz, Suez, Malacca
4. Government policy matters — Export bans, quotas, tariffs
5. Information is crucial — Early awareness = advantage
6. Flexibility enables adaptation — Alternative routes, suppliers

References

• EIA Country Analysis Briefs
• IEA Monthly Oil Market Report
• OFAC Sanctions Programs
• Control Risks Political Risk Service
• Stratfor Geopolitical Intelligence