Middle East crisis reinforces commodity supercycle – emerging market bonds poised to benefit

The recent escalation in the Middle East has once again highlighted the vulnerability of global energy supply. For financial markets, however, the conflict represents more than just a short-term oil price shock. It confirms a structural trend: commodities are regaining strategic importance worldwide. In our view, the ongoing geopolitical realignment is reinforcing a commodity supercycle that could extend over many years.

Geopolitical tensions and the expansion of artificial intelligence are currently shaping not only equity markets; they are also marking the beginning of a commodity supercycle. Three security-related dimensions are acting as its long-term drivers: energy security, food security and defence security. Commodity producers in emerging markets in particular stand to benefit, as they expand production capacity and require additional financing. Consequently, investor interest in the bonds issued by these companies is rising.

The main drivers of commodity demand

Global AI infrastructure is expanding rapidly and is contributing, among other factors, to a significant increase in electricity demand. In the United States, for example, energy consumption from data centres could triple by 2035 compared with 2024. Recent events in the Middle East illustrate the dilemma. A substantial share of global oil supply is geographically concentrated, particularly around the Persian Gulf. Even minor disruptions can therefore trigger significant price movements.

At the same time, demand is rising not only for fossil fuels but also for renewable energy and industrial metals. China is investing heavily in solar, wind and hydropower to address the environmental consequences of climate change and strengthen its economic independence. The aim is to produce as many strategically important goods as possible domestically by 2035. Battery storage and grid infrastructure are further boosting demand for copper, cobalt and rare earths.

The defence sector is also driving commodity demand. Modern weapons systems require rare earth elements and metals, such as cobalt or rhodium. The expansion of naval forces by China and the United States is reinforcing this trend. Precious metals are also gaining importance: many countries, particularly within the BRICS group, are increasing their gold reserves to hedge against geopolitical risks and a potential depreciation of the US dollar.

Food as an underestimated resource

Another key factor in the current commodity supercycle is food security. China regards it as strategically important, yet globally demand for food exceeds supply. According to the UN World Food Programme, around 600 million people are undernourished, while food prices have risen significantly faster than overall consumer prices since 2020. Emerging markets, such as Brazil, Argentina and other major exporters, are therefore becoming more deeply integrated into global agricultural markets, increasing both investment needs and financing demand.

Mines cannot meet demand

Supply gaps are also emerging in industrial metals. Low prices in the past discouraged investment in new mines, as developing new deposits is both time-consuming and capital-intensive. Copper illustrates this trend well: although there have been temporary surpluses, consumption linked to the expansion of energy infrastructure and data centres is expected to exceed production in the future. Analysts at Goldman Sachs and J.P. Morgan expect significant deficits from 2027 onwards. The supply of rare earths also remains tight, while demand continues to rise. China plays a key role in both their extraction and processing.

Capital markets are already responding. In addition to traditional mining companies, so-called “enablers” of the transition are benefiting – providers of power infrastructure, battery and storage technologies, or grid optimisation. Companies investing in efficiency and capacity expansion are strengthening their competitive positions in a sustainable way.

Investors benefit from enormous investment demand

One of the most attractive asset classes linked to this supercycle is the bonds of emerging market companies. Commodity-exporting countries benefit from higher prices, which strengthens both trade balances and corporate credit metrics. A weaker US dollar and potentially declining interest rates – for example in Brazil – provide additional support for EM corporates. At the same time, capital demand remains high: Infrastructure, mining and agricultural production require continuous financing. Despite strong cash flows, many companies continue to access capital markets to expand their investment capacity. High yields and attractive valuations further enhance their appeal.

Regional opportunities exist particularly in Latin America, Asia and parts of Africa. Chile and Indonesia benefit as exporters of metals and copper, while Brazil and Argentina are key players in the agricultural sector. China is pursuing a strategic stockpiling policy in rare earths to secure its industrial base.

Diversification across sectors and regions

Investors should consider the entire value chain – from raw material extraction and processing to infrastructure and technological applications – while also diversifying across sectors and regions. The commodity supercycle combines structural demand, geopolitical realignment and substantial investment needs. All indications suggest that this trend is likely to persist for several years.