Russia's attack on Ukraine sparked huge volatility across global commodity markets on Thursday: Oil passed $100 a barrel for the first time since 2014 before swiftly retreating, while gold reversed its gains. European gas jumped earlier in the day, aluminum hit an all-time high and milling wheat traded in Paris reached a record.

After surging in the first part of the day, oil and gold quickly cooled after investors viewed U.S. sanctions on Russia as weaker than expected. President Joe Biden said energy imports will be omitted from the measures, and that the U.S. is working with major oil-consuming nations to coordinate a collective release from strategic petroleum reserves.

The wild price swings underscore just how sensitive commodity markets are to any possible disruptions to supplies. Tight inventories of everything from copper to natural gas and soybeans have roiled global supply chains and helped to fuel inflation. Russia is central to global production of oil and natural gas, along with many industrial metals and food crops. Ukraine is also a major player, carrying much of Russia's oil and gas exports through its pipeline networks and exporting huge volumes of wheat and corn.

Even as some prices cooled on Thursday, shortages in energy, metals and grains mean that traders remain on tenterhooks and markets could just as easily snap higher again on signs of any further supply threats. Big rallies across raw materials in recent months have already driven increases in the cost of living for billions of consumers, and continued price spikes threaten to put a brake on economic growth. 

For the last two decades, geopolitical tensions “have been at a time of commodity abundance,” Erik Knutzen, chief investment officer of multi-asset class at Neuberger Berman, said in an interview on Bloomberg Television. The current situation “makes growth more challenging, particularly in Europe. It also amplifies the inflation side, which is different this time compared with other risk-off environments,” he said.

What made Thursday’s trading particularly noteworthy was how swiftly the impact of the Russia-Ukraine crisis was felt across a broad range of commodities markets. The world has seen oil shocks before — Iraq's invasion of Kuwait, for example — but no international crisis in recent memory has simultaneously hit all the world's raw-materials markets so hard, so fast.

Biden imposed stiff sanctions on Russia over its invasion of Ukraine as Western nations warned that Kyiv could fall within hours. But crucially, he carved out payments for petroleum, Russia’s biggest export. Biden also said the U.S. will release additional barrels of oil from the Strategic Petroleum Reserve as conditions warrant.

“I know this is hard and Americans are already hurting,” Biden said from the White House. “I will do everything in my power to limit the pain the American people are feeling at the gas pump.”

Russia’s power over global oil prices has only grown since the pandemic because demand for petroleum is roaring back, and suppliers have had a hard time keeping up. 

With inflation already at the highest in nearly 40 years in the U.S. and at a record in Europe, consumers can ill-afford another steep hike to the cost of food, transport and consumer goods. Some analysts have even raised the specter of stagflation, marked by a period of low or stagnant growth and high inflation — a situation not seen in most major economies since the oil shock of the 1970s.

“We’re now getting to levels where there may be demand destruction,’’ Mike Wilson, chief equity strategist at Morgan Stanley, said in an interview on Bloomberg TV. “We already had a negative view on growth, and this is going to make things worse.’’ 

The severity of the commodity squeeze puts pressure on other suppliers to respond. But few can quickly increase production of metals and crops, or even speed up deliveries of natural gas and pump more crude. Of those who can, OPEC, and particularly Saudi Arabia, are likely to come under huge pressure to calm the global oil market by ramping up spare capacity. But such a decision will be complicated by the cartel’s new alliance for the past few years — with Russia. 

Meanwhile, physical flows of commodities are already being interrupted. Oil traders are looking for alternative sources to Russian crude, according to one of the world’s largest tanker companies. Ukrainian sea ports and railways closed, throwing wheat and metals exports into chaos. 

“Russia/Ukraine had been traded as primarily an inflationary impulse, but it is now transitioning to the realm of a material constraint on the global growth outlook,” Ian Lyngen of BMO Capital Markets said in a note. “An energy crisis is the most direct path to stagflation; and an unfortunately familiar one.”

Oil

U.S. benchmark West Texas Intermediate briefly topped $100 a barrel before clawing back most of the gains after Biden’s comments on the energy carve-out and potential reserve release. Brent earlier flirted with $106 a barrel before falling back below $100. 

The volatility is due in large part to a market already under stress, as oil supplies around the world fail to keep pace with a vigorous recovery in demand as the coronavirus pandemic recedes. The OPEC+ coalition, led by Russia and Saudi Arabia, is struggling to restore production quickly enough.

If pressed, Saudi Arabia is likely to side with its Western allies and, together with OPEC, add as much as 1 million barrels a day to the market in the short-term, with the potential to add 2 million barrels a day over time, according to Chris Duncan, an analyst at San Diego-based Brandes Investment Partners, which manages about $25 billion.

Gas

European energy prices soared, with benchmark Dutch gas futures up more than 60%. German power for March jumped, while coal also surged after news of Russia’s attack broke. The continent depends on Russia for more than a third of its gas supplies, and about a third of those flows are shipped via Ukraine. Low inventories of the fuel last year sent prices to record levels, and volumes from Russia have been curbed since the second half of 2021. 

A short-term cut to gas supplies is a much bigger problem than to oil, which can more easily be transported from elsewhere in the world, according to Duncan of Brandes. Even if the U.S. were to export all its liquefied natural gas solely to Europe, it would only replace a third of the amount supplied by Russia, he said. 

Crops

Benchmark wheat climbed to a nine-year high in Chicago on worries about potential supply disruptions in the Black Sea region. Milling wheat traded in Paris soared as much as 16% to a record, and oilseeds also bounded higher, heightening concerns of a further acceleration in global food inflation. 

Ukraine and Russia account for more than a quarter of the global trade in wheat, about a fifth of corn sales and 80% of sunflower oil exports. Any restrictions could threaten a vital source of supply at a time when unfavorable weather and robust demand have already reduced crop stockpiles.

“We basically woke up to a completely different market,” said Jacqueline Holland, an analyst at Farm Futures. “There’s a lot of unknowns.”

Metals

Aluminum rallied to a record in London and nickel surged to the highest in more than a decade, pacing gains in industrial metals.

The price increases will heap fresh inflationary pressure on buyers who use aluminum in everything from cables to drinks cans. The threat of supply disruption will be particularly troubling for manufacturers in Europe who buy large volumes of specialist products using the metal that come from Russia.

Gold surged to the highest since September 2020 after the attack, but then gave up all its gains. Investors turned away from the safe haven after softening their views on the economic fallout from the Ukraine crisis in light of Biden’s limited new sanctions. Spot gold traded little changed at $1,903.92 an ounce as of 5:07 p.m. in New York.