Russia’s escalating, if struggling, invasion of Ukraine provides an ugly reminder of Europe’s war-prone past. In threatening supplies of energy, crops and other necessities, it also resurfaces something globalization obscured: Our dependence on complex, free-flowing trade routes. Germany’s reliance on Russian gas to ease its energy transition is one of the more obvious examples laid bare. But this summer’s Sri Lankan unrest, and the ousted president’s frantic calls to Moscow for oil before he fled, also demonstrated how prices transmit crisis.
The post-war order of free trade backed by US naval supremacy (and security guarantees) has looked shaky for a while. The Ukraine war offers a glimpse of what came before. In the new normal — or reversion to the old normal — there’s a sharper strategic edge to dependence on imports of vital stuff from elsewhere.
A simple way to assess this is to look at net imports of oil, natural gas and coal as a share of energy consumption, and net imports of cereals as a share of domestic food supply. I did this for 135 countries and territories representing more than 95% of the global population.(1)
The vast majority of countries have some sort of import dependency and more than half rely on net imports for both food and energy.
To emphasize, these are broad categories. For example, Australia is a powerhouse exporter of fossil fuels but, within that, it is still a big net importer of oil. Coal and gas are its big net exports. Similarly, “cereals” is a catch-all term that doesn’t capture the nuances of, say, swimming in corn but being deficient in wheat.
Those bars also hide vast disparities in dependence and relative wealth. Here’s the full sample set showing the percentage of net imports of fuel and food for each country and their gross domestic product per capita.
Only eight countries in the sample occupy that enviable bottom left quadrant as net exporters of both fossil fuels and cereals. Russia sits comfortably in the middle of that zone, providing it with the means to weaponize commodity exports.
The US is also there, although that is a fairly recent development on the fossil fuels axis. Just a few years ago, the US would have been in the upper left quadrant, exporting surplus grain but still bringing in lots of oil on a net basis. Being mathematically a net exporter hasn’t rendered the US immune to energy shocks; pump prices soared this year because the country still buys and sells oil on a global market. The rebound in domestic oil and gas production does, however, provide more comfort that supplies will be available even in an emergency — which is one reason emergency reserves have been sold off. The shale boom simultaneously enables US support for allies in the form of energy exports, at a price, even as it provides fodder for isolationists.
The opposite extreme, where half the countries reside, is that top right quadrant.
Sri Lanka is there but so, too, are several rich, industrialized economies, such as South Korea and Japan. Plus, almost half the European Union, including Italy, Spain and the Benelux countries, as well as the freshly departed UK.
The EU’s position is interesting. Individually, all members depend on net imports of fuel and many also for crops. Germany, the EU’s largest economy, escapes that latter grouping, but only just: net exports of cereals are 1% of domestic supply. The only large economy that is firmly a net exporter of cereals is France.
Yet, taken as a whole — meaning discounting trade between members — the EU would sit in the upper left quadrant. Still dependent on net imports of fuel for 61% of its energy needs but also a net exporter of cereals equal to about 10% of its overall supply.(2) Add Norway, a close neighbor and military ally of many EU members, and the pro forma energy ratio would fall to 35%. The implication is that, in this crisis, Europe will hang together or be hung separately — and the Kremlin will exert as much pressure as possible this winter to crack commitment to the common market.
Another occupant of that top right quadrant is China. Diversifying energy supply is a long-standing strategic objective for Beijing; China imports far more fossil fuels, net, than any other country in absolute terms, more than double that of the second-largest, Japan. China thus has every reason to capitalize on Russia’s sanctions-induced discounts on energy exports but also to be wary of becoming overly reliant on one supplier. The push to diversify energy demand by electrifying transportation, and owning much of the supply chain to build those vehicles, can be read as part of this strategic effort.
With regards to food, China is a top three producer of corn, wheat and rice — but only as a result of intensive farming. China is the world’s number one user of pesticides and inorganic fertilizer, with the latter adding a further strategic dimension to its high oil and gas imports. Moreover, despite being a top three producer of those crops, China isn’t a big exporter of any of them. Indeed, it is the world’s second-largest importer of rice — a potential vulnerability that plays on President Xi Jinping’s mind.(3) In short, China is a huge agricultural power but must be just to (mostly) feed itself.
All this underlines a paradox. Even as China pushes against US hegemony, it implicitly relies on the US Navy to protect the sea-lanes supplying vital commodities and carrying Chinese manufactured exports. That’s worth bearing in mind as tensions rise over Taiwan.
Still, China is a giant economy with the means to bid for imports. The truly vulnerable are those countries highly dependent on imports, relatively poor and in debt. To capture these other dimensions, I ranked the 135 states on five different criteria: fuel and cereal import dependency, gross domestic product, GDP per capita and government-debt-to-GDP. Then I added up the rankings to produce a simple score for each country, the lower the better.(4)
The most vulnerable states are primarily emerging economies spread across Africa, southern Asia and Latin America; such as Sri Lanka, but also Egypt, Jordan, Tunisia , El Salvador and Bangladesh. Several Mediterranean countries, including Italy, Greece and Cyprus, also stand out for their high import dependence and debt. Their EU membership and relatively high income are important buffers.
Russia, a commodities superstore with middling income and low public debt, scores highest. That gives it an edge in the near term, although the damage to its European energy relationship and access to technology will likely inflict severe harm over time (provided its adversaries can hold out). Moscow hopes to fashion an anti-western coalition, with its raw materials being the carrot (or stick). Just as it’s provided fuel to Sri Lanka and dangles discounted energy to China and India, it sent its foreign minister on a support-seeking tour of Africa this summer, armed with a portfolio of fuel, food and minerals. Almost 40% of Africa’s wheat imports come from Russia and Ukraine.
The bigger problem is that if the Ukraine crisis, along with a broader backlash against globalization, portends a more fragmented world, large parts of it will struggle to adjust. This isn’t merely a question of who imports what from whom and how they pay for it, either.
In his recently published book, “The End of the World is Just the Beginning,” geopolitical analyst Peter Zeihan emphasizes an outgrowth of globalization: specialization. International supply chains are, after all, about efficiency and competitive advantage. Seven decades of free trade backed by US security, more or less, encouraged many countries to trade some measure of independence for faster growth. Indeed, that order has enabled countries with few natural resources, and otherwise precarious geography, to become economic dynamos in certain fields; think of Taiwan in semiconductors, for example. Equally, global trade has enabled population explosions in countries with scarce agricultural resources because they can sell other goods, securely, to ship in food; think Saudi Arabia.
The disruption of trade, and duplication of efforts in order to shore up resilience against it, portends inflation and slower growth writ large as sovereignty asserts itself against efficiency.
At the dire end of the scale, countries like Sri Lanka that depend on physical and financial flows from elsewhere, face shortages, economic hardship and potential social unrest. Bear in mind, too, that many such countries lie within the tropics, meaning their productive capabilities, including agriculture, are especially vulnerable to the impacts of climate change (see this).
High prices for energy and crops, combined with an ascendant dollar, will suck away more of the most vulnerable countries’ income even as the need to restructure their economies intensifies. The temptation to bargain with Russia, however reluctantly, will be strong. With over 200 million people in an acute food crisis, and ten times that number facing some form of food insecurity — today — this is existential.(5)
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(1) Fossil fuel dependency ratio calculated using 2020 data supplied by the International Energy Agency. Cereal dependency ratio is a three-year average for the period ended 2019, as supplied by the Food and Agriculture Organization of the United Nations. Overall data set limited to those countries with both sets of numbers available.
(2) EU cereal import dependency is estimated for the July 2022 to June 2023 season. Source: EU Committee for the Common Organisation of Agricultural Markets.
(3) All these data are as of 2019 and come from the FAO’s World Food and Agriculture Statistical Yearbook 2021.
(4) In theory, a country could rank number one on all five criteria and, therefore, score just five points, the best possible (the worst would be 5 x 135 = 675). As it is, Russia is top with a score of 106 and Jamaica comes last with a score of 569.
(5) Source: “Food Insecurity: The New Normal”, JPMorgan Chase & Co., September 2022.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’s Lex column.
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