Systemic trade-risk of critical resources

TL;DR

This paper examines how interconnected global trade networks of critical resources contribute to systemic trade-risks, highlighting vulnerabilities and regional differences, especially in the EU, with implications for geopolitical stability.

Contribution

It links resource scarcity and trade network structure to systemic trade-risk, providing new insights into cascading supply shocks and regional vulnerabilities.

Findings

Scarcity correlates with network susceptibility to shocks.

Regional price volatility relates to centrality measures.

High systemic trade-risk resources are often byproducts of major metals.

Abstract

In the wake of the 2008 financial crisis the role of strongly interconnected markets in fostering systemic instability has been increasingly acknowledged. Trade networks of commodities are susceptible to deleterious cascades of supply shocks that increase systemic trade-risks and pose a threat to geopolitical stability. On a global and a regional level we show that supply risk, scarcity, and price volatility of non-fuel mineral resources are intricately connected with the structure of the world-trade network of or spanned by these resources. On the global level we demonstrate that the scarcity of a resource, as measured by its trade volume compared to extractable reserves, is closely related to the susceptibility of the trade network with respect to cascading shocks. On the regional level we find that to some extent the region-specific price volatility and supply risk can be understood by centrality measures that capture systemic trade-risk. The resources associated with the highest systemic trade-risk indicators are often those that are produced as byproducts of major metals. We identify significant shortcomings in the management of systemic trade-risk, in particular in the EU.