GRACELIN BASKARAN: Countries will import commodities from a pariah when energy security is at stake

Has mineral and metal production suffered as a result of the sanctions imposed on Russia as a form of economic punishment for its invasion of Ukraine? Hardly. The flow of Russian commodities exports indicates that production has actually increased in some cases. 

Before the invasion, Russia produced 204,283 tonnes of nickel. In 2022, it produced 223,110 tonnes and in 2023, 206,982 tonnes. That nickel production actually increased since the invasion indicates that much of the world is still willing to engage with Russia. But where is it going? 

At the height of the invasion, in 2022, Russia exported $411m worth of nickel ore, mainly to China, Canada, the Czech Republic and South Korea. While China took the lion’s share, it is important that exports to the other countries did not stop.

The same applied to palladium, one of the platinum group metals (PGMs). SA has the world’s largest PGM reserves, but Russian ore has a higher concentration of palladium. In 2021, before the invasion, Russia produced 2.6-million ounces of palladium. In 2022, it produced 2.7-million ounces and in 2023, as the war raged on, it still managed to produce 2.5-million ounces. 

Uranium is a particularly interesting example. Even at the peak of sanctions, the US and its allies never stopped importing uranium. In fact, in absolute terms, Russian uranium production expanded significantly. 

Before the invasion in 2020, the country produced 6.9-million pounds of uranium. During the height of the invasion in 2021 it produced 6.5-million pounds. And in 2023, as the war raged on, it produced 10-million pounds. 

At the same time, Russia’s mineral exploration has dropped significantly, probably because the long-term horizon of developing a mine into production phase is high risk now. It doesn’t help that moving money in and out of Russia became harder due to sanctions and increased risk. 

In 2021, Russia received $527m in exploration investment from 32 companies. This dropped to $359m and 29 companies the next year, and to $286m and 20 companies the year after that. That’s a decrease of almost 50%. 

It will be interesting to see how this changes as policies evolve. In April, the London Metals Exchange banned all Russian aluminium, copper and nickel from trade on its platform. It is possible that this will be rerouted from the LME to over-the-counter trades, but it is still a big blow to Russian nickel producers. 

In May, the US banned imports of Russian uranium effective from August. However, given its crucial role in nuclear energy production (which forms a significant share of baseload power in the US) and the underdeveloped uranium industry in the US, there’s a provision that allows the energy department to receive a waiver until January 2028. 

There are a few things this teaches us. First, countries will continue to import commodities from a highly sanctioned country and global pariah when energy security is at stake. Nickel and palladium are critical for the production of clean energy technologies, particularly electric vehicle manufacturing.

Uranium is a critical input for nuclear power across the US and Europe. We’re more flexible on our morality when it comes to our energy security — a uranium shortage would have cut off nuclear power, and given its share of energy in these countries stopping imports wasn’t viable. 

But third, exploration trends show that companies are still sensitive to risk. The idea of investing significant amounts of capital in a long-term asset was too commercially risky. 

Commodity markets are fascinating, mostly because countries can’t develop an industry overnight and thus rely on existing trade flows for a longer period. As I often remind people, minerals and metals exist where they do. You have no control over where the geological gods have placed them. 

• Dr Baskaran, a development economist, is founding director of the Project on Critical Minerals Security at the Centre for Strategic & International Studies in Washington, DC.