Hidden away in the Alps, Switzerland is known for being a major banking center. Commodity trading, on the other hand, makes fewer headlines, but this business is much more important. This may seem strange for a country far away from major trade routes, without access to the ocean and without former colonies or any significant raw materials of its own. Still, the country is one of the world’s most important trading centers for raw materials.

“In Switzerland, the industry has a significantly larger share of gross domestic product than tourism or the machine industry,” Oliver Classen, from the Swiss nongovernmental organization Public Eye, told DW.

Huge transactions are made here in near secrecy. According to a government report from 2018, the trade volume processed via Switzerland was estimated at almost $1 trillion (€906 billion). The five largest Swiss companies in terms of sales are not banks or pharmaceutical companies, but commodity traders. Most of the 900 companies active in commodity trading are based in Geneva, Zug or Lugano.

Russian commodities often go through Switzerland

About one-third of the oil traded worldwide is bought and sold in Geneva. Likewise, two-thirds of the global trade in base metals such as zinc, copper and aluminum, and two-thirds of internationally traded grains are processed in Switzerland.

Russia, with all its oil and gas, is no stranger to the country. According to a report by the Swiss embassy in Moscow, around 80% of Russian raw materials are sold via Switzerland.

Oil and gas exports are the main source of income for President Vladimir Putin. Together they make up between 30%-40% of the Russian state budget. In 2021 alone, Russian state-owned companies earned around $180 billion from oil exports.

With the war raging in Ukraine, Swiss politicians are becoming more critical. “Switzerland must now turn off the tap of Russian war financing,” demanded Cedric Wermuth from the Swiss Social Democrats on SRF radio. Indeed, the country is in a unique position to cut off the commodity trade and the fortunes of rich Russians. So far, however, the sanctions imposed by the EU and the US have not affected trade in raw materials, even though American will no longer import Russian oil.

True to its history, Switzerland maintains its neutral status and does not impose sanctions on its own. The country’s embargo law means it can only join sanctions others have put in place, so the country only steps up if pressured after major trading partners or the UN Security Council decide on economic sanctions.

Swiss efficiency for the commodities trade

Commodities are often traded directly between governments and through commodity exchanges. Companies in Switzerland have specialized in the direct sale of commodities, because they have enough money to handle the trade in the first place.

Depending on the current price of oil, a single tanker load of crude oil can come in at $100 million. That is money most companies don’t just have sitting around. But Switzerland was at the forefront of developing financing instruments for such big transactions.

In these transactions, letters of credit are often used. A bank gives the dealer a loan and temporarily becomes the owner of the goods. As soon as the buyer has paid the bank for the raw materials, the ownership of the raw materials is handed over. As a result, the retailer has a large credit line and the bank has the commodities as security.