As Trump, Putin agree to talks on ending Ukraine war, global oil and food markets eye supply relief

Donald Trump, Vladimir Putin

US President Donald Trump and Russian President Vladimir Putin have agreed to begin negotiations to end the war in Ukraine, a move that could ease geopolitical risks to Russian crude oil supply, impact global agricultural trade, and drive a rally in financial markets. Trump said both Putin and Ukrainian President Volodymyr Zelenskiy expressed a willingness for peace in separate phone calls with him on Wednesday, prompting him to instruct top US officials to initiate talks on ending the war.

The development has already had an impact on global markets, with US and European stock futures rising on optimism over a potential peace deal. Nasdaq futures rose 0.4 percent today, and S&P 500 futures gained 0.2 percent. Japan's Nikkei climbed 1.4 percent, while Hong Kong's Hang Seng index extended its bullish run with a 2.5 percent gain. At the same time, the euro strengthened, and oil prices dropped as traders anticipated easing supply constraints.

Oil supply concerns ease

With Russia being a major crude oil supplier, the prospect of an end to the war in Ukraine has raised hopes of stabilising global crude prices and reducing geopolitical risks to Russian oil supply. Brent crude fell below $75 per barrel, declining 2.4 percent -- the steepest drop in more than two months -- while West Texas Intermediate was near $71.

Trump said negotiations would start immediately, and he would probably meet Putin in Saudi Arabia in the “not-too-distant future,” according to a social media post. Analysts have said a potential de-escalation could result in more predictable trade flows, reduced price fluctuations, and stabilised energy costs worldwide.

Also read | BofA's Amish Shah sounds alarms on small and midcap overvaluation, warns of more pain

Fertilizer, grain markets watch closely

The war’s impact on global fertilizer and agricultural markets has been significant, with Moscow’s invasion of Ukraine disrupting supply chains and driving up input costs for farmers. A resolution to the conflict could ease supply constraints, increasing the availability of key fertilizers and lowering costs for farmers, Bloomberg reported, citing experts. This would come at a time when global grain prices are already under pressure, further squeezing agricultural companies reliant on high input prices.

Russia and Ukraine together accounted for a third of global wheat exports last marketing year. However, according to Russian government data cited by Reuters, Russia’s winter grain crops are reportedly in their worst-ever condition, with 37 percent classified as being in poor shape -- far above the five-year average of 8 percent.

Meanwhile, Ukraine’s wheat exports have faced logistical challenges due to damaged port infrastructure, forcing a reliance on alternative routes such as Romania’s Constanta port. The Reuters report said that the frontrunner in Romania’s presidential runoff this Sunday has suggested halting Ukrainian grain exports via Romania if elected, a move that could disrupt trade routes.

Also read | ICICI Pru MF least exposed to small, midcaps among top five fund houses

Implications for India’s edible oil imports

A potential end to the war may also impact India’s edible oil imports, particularly sunflower oil. Russia and Ukraine together supply over 70 percent of the world’s sunflower oil, and intense competition between the two has driven down prices, leading India to purchase a record 500,000 metric tons of sunflower oil for June 2024 delivery. According to traders cited by Reuters, a return to stable trade flows could influence future pricing trends, particularly if geopolitical tensions ease.

Long-term adjustments in global food supply

Despite initial fears of a prolonged food crisis following Russia’s invasion, global wheat prices stabilised after an early spike, though they remain marginally higher than pre-war levels. A study by the University of Illinois and Texas Tech University found that while wheat prices initially surged by 28 percent, markets adjusted over time, with price impacts levelling out.

The World Bank had also warned that Ukraine’s reduced grain exports could have serious implications for food security in several countries that relied heavily on Ukrainian wheat. Many nations mitigated the impact by sourcing from alternative suppliers such as Russia and Romania, while others substituted wheat imports with other grains.

These adaptive strategies, along with resilient global supply chains, prevented a severe long-term crisis. However, an end to the war could further stabilise global food markets and allow Ukraine to regain its position as a key wheat exporter, potentially reigniting trade flows.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.