Commodity crisis and supply chain chaos: How geopolitical tensions are changing the global economy

In addition to oil and gas, almost all important metals are experiencing drastic price increases. Commodity prices are rapidly approaching the record levels of 2021 – and hardly any industrial sector is spared. The psychology of market participants is having a particularly decisive effect: real or expected shortages trigger a chain reaction of uncertainty, hoarding and strategic stockpiling.⠀

This behavior is reminiscent of the so-called “toilet paper crisis” during the coronavirus pandemic, when hoarding artificially exacerbated the shortage and drove up prices. We are experiencing a similar situation on the commodities market today: supply chain problems triggered by geopolitical tensions are fueling a vicious cycle of stockpiling and further price increases. Experts estimate that up to half of the price increases following shock events such as the closure of the Strait of Hormuz can be attributed to this psychological dynamic.

The situation is particularly critical for materials that are indispensable for modern technologies. Lithium has become massively more expensive in a very short space of time and tungsten has experienced extreme price hikes. At the same time, semiconductor supply chains are also coming under increasing pressure, as metals such as gallium and indium are essential for high-performance chips, sensors and modern communication technologies. This development is not only putting electromobility and semiconductor production under pressure, but is also forcing the industry to quickly rethink its strategy.

The market for rare earths is a textbook example of how states use commodities as political leverage – and China has mastered this game with great consistency. Before international summits, Beijing sends out signals of willingness to talk with seemingly generous export gestures – such as the recent release of 60 tons of yttrium oxide for the USA.⠀

At the same time, however, the Chinese government is further tightening its control over its own rare earth industry: strict quotas, high penalties and technical control standards give Beijing far-reaching influence over production and export flows. The message is clear: China decides when and how much is exported and uses individual approvals tactically to maintain its raw material leverage.⠀

In parallel, the West is pursuing its own decoupling initiatives – but in the short term, each new rule exacerbates global scarcity and increases competitive pressure for available commodities.⠀

The USA is also taking a decisive approach: with the “No China” doctrine, the use of Chinese rare earths in the American defense industry will be completely banned from 2027. This measure will force companies to make fundamental changes to their procurement processes and increase the pressure to develop alternative sources of supply and build up their own processing capacities in the West.⠀

The result is intensified global competition for the few freely available strategic commodities, which is driving both prices and security requirements to new highs.

Geopolitical tensions in the Indo-Pacific are intensifying in parallel with the commodities crisis. China’s ongoing crackdown on Taiwan is putting the entire region under massive pressure. The use of supposedly civilian research vessels in foreign waters is part of a risky gray-zone tactic.⠀

Such manoeuvres destabilize one of the world’s most important trade routes. They drastically increase the risks for international freight routes and further exacerbate global supply chain problems.

The current global situation demands a radical rethink in the industry. The decades-old principle of “just-in-time” is increasingly giving way to the safety-oriented concept of “just-in-case”.⠀

Companies build up large stocks to protect themselves against sudden shocks. Although this stockpiling creates security, it ties up enormous amounts of capital and further reduces the availability of goods on the market. At the same time, psychological factors drive the price spiral even further with each new conflict.

Dependence on individual countries and vulnerable supply chains must be reduced. The diversification of supply sources and the targeted development of new, reliable raw material deposits are no longer optional, but a strategic necessity. Only by consistently developing stable alternatives can we guarantee the long-term security of our industry and arm ourselves against future geopolitical tensions.