Palm oil futures prices in Indonesia — the world’s biggest exporter of the product — have soared by more than 18% since last Wednesday, the day before Russia launched its attack, according to data from Refinitiv.
The war in Ukraine has increased uncertainty over whether port closures and shipping delays will limit deliveries of sunflower oil. Ukrainian sunflower oil futures increased 32% in the first few days of the invasion, according to S&P Global Platts data.
Palm oil is a common ingredient found in many of the world’s food and cosmetics. It’s also used for cooking in India, the world’s top importer.
James Fry, chairman of consultancy LMC International, told CNN Business that consumers in China, Pakistan, Bangladesh and countries in north Africa will also feel the pinch.
“All these people are — if they can get the oil — going have to pay much more for it,” he said.
“They will be forced to cut back their consumption of oil. They won’t be able to afford it. Especially if things like wheat are also much more expensive,” Fry added.
Russia’s attack on Ukraine had “happened just at the wrong time” for an extremely tight vegetable oil market, Fry added. Indonesia’s Ministry of Trade said in January that it would cap shipments — which make up about 55% of the world’s exports — to try to hold down rising domestic prices.
Malaysia is the second-largest exporter, but a shortage of workers during the pandemic limited production. Malaysian palm oil futures have risen 76% since the beginning of this year, according to S&P Global data.
Palm oil buyers can no longer rely on Ukraine’s sunflower oil, which usually makes up one third of global production and half of all exports, to help plug the gap as long as trade is disrupted by the war.
Buyers could shift to soybean oil, Fry said, but production is unlikely to ramp up enough to meet demand at short notice.
“The global vegetable oil market was in a very tight and precarious situation before anything going on in the Black Sea,” Paul Hughes, chief agricultural economist at S&P Global, told CNN Business.
Hughes said that the combined effect of the war in Ukraine and economic sanctions on Russia meant the “market is presuming the loss of that supply for an extended period of time.”
Even if the conflict eases, buyers of sunflower oil can expect to pay big risk premiums for shipping in the region, Fry said.
“[The Russians have] destroyed facilities … buyers may be very wary of committing to large purchases if they don’t know that it’ll be delivered,” he said.
Global food prices shot up 28% last year, driven in part by supply chain disruptions, according to the United Nations’ Food and Agriculture Organization. Russia’s assault on Ukraine, and its impact on the supply of commodities such as wheat and oil, could push prices up even further and exacerbate food insecurity.
Wheat futures rose by more than 4% on Wednesday to hit a 14-year high.
— Julia Horowitz contributed to this report.