Russia-Ukraine war could trigger global recession, warns former Vale director

Ukrainian flag in Lviv. Stock image.

The war in Ukraine could lead to a global recession, according to Jose Carlos Martins, Vale’s former Executive Director of Ferrous and Strategy.

“Russia and Ukraine are two major players. Replacing the Russian supply would take too much time,” Martins said in an interview with MINING.COM.

Russia earns more than $1 billion a day exporting its oil and gas, much of which goes to Europe. The continent gets nearly 40% of its natural gas and 25% of its oil from Russia.

Russia's Commodities Reach - Bloomberg

On April 8, the European Union agreed on a series of new sanctions on Russia, including banning imports of coal, which totalled 48.7 million tonnes in 2021. 

Martins, who currently runs the consulting company Neelix, points to the 1990s as context to understand the weight of the conflict on the global economy.

“In 1991, the USSR was the second most industrialized nation in the world but it was a controlled economy. The role of the industry in the USSR economy was huge. When the Soviet Union collapsed, the industry—heavily supported by defense—also collapsed,” said Martins.

“All the raw material and energy surplus went abroad, mainly to Europe, causing an increase in the supply of commodities. Prices only balanced out when China entered the market, a decade later,” he said.

According to the former Vale director, what happens now is the opposite.

“The West will not be able to replace Russian oil or gas exports in the near term. Russia is also a major exporter of nickel, palladium, and aluminum.”

“Replacing the Russian supply will take time. Environmental issues and climatic factors increasingly delay new mining projects, for example. There’s only one way to adjust the market, and that’s to trigger a recession.”

“If Russia does not return to the market, there is no way to meet the demand. Prices will rise, we will have inflation, and global interest rates will rise to contain consumption.” 

Commodities prices soared to a record last month as Russia’s invasion of Ukraine roiled markets, boosting the prices of everything from oil to wheat.

According to Martins, the short-term scenario is good for commodities, but in the medium term, a correction will be necessary.

In a recent report, Wood Mackenzie said global economic growth could slow to 2.5% year-on-year in 2022 and 0.7% in 2023 due to the Russia-Ukraine war.