Commodities are the raw material of civilization—the lifeblood of the world economy. But their very name makes them sound far more ordinary than they are. A commodity is, by definition, something without a distinguishing identity. When something has been “commoditized,” it lacks the glamour of branded consumer goods. There’s no luxury logo on a barrel of oil or a ton of copper, no marketing campaign behind a shipment of wheat. And yet it’s precisely this uniform and interchangeable nature that allows commodities to be traded seamlessly on global markets—ensuring that people across the world can access the raw materials they need, regardless of where they live.
Because commodities are essential yet distributed unevenly among countries, they have always been a source of both economic opportunity and geopolitical vulnerability. The first long-distance trade routes emerged to move valuable raw materials across continents: The trans-Saharan caravans connected West Africa’s goldfields and salt mines to North Africa and Europe; early maritime networks across the Indian Ocean traded spices, ivory, gems, and precious metals between East Africa, Arabia, India, and Southeast Asia. But these same resources also triggered conflicts.
Today, commodities continue to play much the same role—powering daily life while shaping the world’s economic destiny. Their importance is rising again as the world moves toward cleaner energy, expands digital infrastructure, and rebuilds its defense capabilities. And these shifts are creating new geopolitical tensions. Understanding commodities is not just about understanding the past; it’s about making sense of the defining economic and political challenges of our time. But what are commodities? How are they traded in modern markets? What drives their often volatile prices? And why do they sit at the center of modern financial markets and geopolitics?
Hard and soft
At the most basic level, commodities are the things we dig out of the ground, such as oil, copper, iron, or gold (hard commodities), and those we raise from the soil, like wheat, coffee, cotton, or cocoa (soft commodities). Everything we touch, eat, wear, or build begins with these unassuming substances.
The phone in your hand, for example, contains about 42 different minerals: Congolese cobalt, Peruvian copper, Australian iron ore, and a dizzying number of rare earths, sourced mainly from China. Even the electricity that charges it rests on commodities: oil, gas, coal, and uranium—or the critical minerals embedded in solar panels and wind turbines.
Whether trading hard or soft commodities, producers and buyers have always contended with a common challenge: how to cope with wildly fluctuating prices. A bumper harvest one year and a drought the next could make or break a farmer—and the same volatility threatened millers, merchants, and the banks that financed them.
To bring order to this chaos, the Chicago Board of Trade (CBOT) was founded in 1848, creating the first standardized marketplace where farmers and their customers could lock in prices months ahead. By selling a prospective buyer a futures contract—a piece of paper that ensures a certain price for a certain quantity of a specific commodity to be delivered at a specific date—farmers could ensure a given delivery price on their production months ahead. Beyond guaranteeing steady income, futures markets allowed farmers to easily contract loans for irrigation, seeds, fertilizers, and pesticides, improving their yields and protecting their crops.
Similar institutions soon followed in other major trading hubs: the New York Mercantile Exchange (NYMEX) for energy products and metals, the London Metal Exchange (LME) for base metals, for example. These exchanges freed commodity trade from the constraints of physical and often local markets. The flexibility of global financial contracts allowed producers to hedge risks and buyers to secure stable prices. Crucially, they also allowed traders to scale their operations: By hedging financial risks that once limited their reach, merchants could move ever larger volumes across continents, accelerating the globalization of many commodity markets.