Skyrocketing petrol prices and heating bills may play heavily on the minds of Western consumers following Russia’s invasion of Ukraine in February 2022. But, elsewhere, arguably just as pressing are the spiralling costs of agricultural staples. Between them, Russia and Ukraine contribute significantly to the global food supply, including producing approximately 80% of the world’s sunflower oil, 29% of wheat and 19% of corn. Amid sanctions and violence in the Black Sea breadbasket, disruption to exports has sent agricultural futures soaring.

In the Middle East, the severity of this market shock is particularly pronounced. The region relies heavily on Russia and Ukraine as the primary suppliers of many commodities, most notably wheat, where import dependence reaches as high as 90% in Yemen, 80% in Egypt and 60% in Tunisia and Lebanon. Even countries with more diverse trade relationships will feel the secondary effects of the conflict as sharp inflationary pressures set in, with global wheat prices rising by over 70% in March alone.

With no resolution to the conflict in sight and Ramadan on the horizon, prolonged disruptions to supply and rising prices drastically raise the risk of unrest. These pressures feed into an existing toxic brew of political disillusionment, entrenched socioeconomic fragility and elevated levels of food scarcity that may stir anti-government protests. In Iraq, demonstrators have already taken to the street in the southern city of Nasiriya complaining of the lack of a government response to rapidly rising wheat and cooking oil prices.

For their part, governments already facing severe fiscal imbalances have little capacity to address popular complaints through price controls, subsidies or the lifting of value-added taxes. They may even make things worse, should they seek to withdraw the increasingly untenable provision of bread and other food staples as welfare or indirectly through subsidies; arrangements which have long formed a fundamental component of the social contract between citizen and state across the Middle East.

Among many Middle East analysts, the sense of déjà vu is becoming increasingly pronounced. Food scarcity and inflation, in-part stemming from wildfires in Russia, were widely credited as a key trigger of the 2011 Arab Spring. Though the landscape has changed markedly since, many of the underlying vulnerabilities that fomented that particular wave of unrest remain evident in fragile states from Algeria and Tunisia to Lebanon and Sudan. In time, the conflict in Ukraine and the market shock it has produced may again stir demands for "bread, freedom and human dignity” from restive capitals across the region. 

Political risk and supply chain issues are some of the risks Axco's team report on in Axco's market analysis tools