Tensions over Ukraine are ratcheting up, with the prospect of sanctions on Russia threatening to further raise prices of commodities key to the global economy.
After continued warnings from the U.S. and its allies that Vladimir Putin could be planning to invade Ukraine — something he has repeatedly denied — the Russian president officially recognized two self-proclaimed republics in eastern Ukraine and ordered what he called "peacekeeping forces" to go into the areas.
Western leaders condemned the moves, with the U.S. and U.K. planning to announce new sanctions as soon as Tuesday, while the European Union will start the process of agreeing penalties.
Markets have been on edge for weeks, and an actual conflict — or sanctions — could drive energy and food prices even higher, and push Europe into a major supply crisis.
Crude oil is approaching $100 a barrel and European natural gas surged on Tuesday. Other commodities have also gained, with aluminum nearing a record and wheat climbing to a one-month high.
Gold, a time-honored haven, is near the highest since June.
"Rising geopolitical tensions are further amplifying the case for commodities, given Russia's far-reaching impact on global commodity markets," JPMorgan Chase & Co. said in a report.
Sanctions could lead to shortages of food and energy, causing prices of both to soar, Bloomberg Intelligence said recently.
Capital Economics said the biggest impact is likely to come through commodity prices, and a worst-case scenario could see oil reach $120 to $140 and gas jump higher, adding about 2 percentage points to headline inflation in advanced economies this year.
Agreeing on the scope of sanctions won't be easy since Russia's moves fall short of a clear military attack, while penalties could threaten to further raise prices of key goods at a time when household budgets are already strained.
The first steps could be penalizing individuals involved in the recognition of the two breakaway regions in eastern Ukraine, a more limited move that could happen relatively quickly.
With traders and policymakers scrutinizing every move and comment in the standoff, here's a look at the potential consequences for key raw materials.
Gas Hit
One of the biggest impacts so far has been on Europe's gas markets. Geopolitical tensions have been amplified by already limited supplies from Russia and below-average stockpiles, with prices in the region jumping nearly fourfold in the past year.
A full-blown conflict could disrupt the massive volumes that Russia sends to Europe, about a third of which typically comes through Ukraine. Sanctions could hit trade and keep a new pipeline, Nord Stream 2, from bringing Russian gas to Europe.
That could all have a big impact on refilling inventories in the summer, making next winter difficult as well. Prices could surge even higher, and send Europe's economy reeling. Russia would also lose huge amounts of revenue.
Still, many think it's unlikely gas supplies would stop, or even be cut significantly.
Russia plans to continue uninterrupted supplies of gas to global markets, Energy Minister Nikolai Shulginov said in Qatar, where he's attending a gas forum.
Food, Fertilizer at Risk
A major casualty could be even higher food prices. Ukraine and Russia together are heavyweights in global wheat, corn and sunflower oil trade, leaving buyers from Asia to Africa and the Middle East vulnerable to more expensive bread and meat if supplies are disrupted.
