Sovereign hedging picks up as developing countries end fuel subsidies

A push to eliminate fuel subsidies across much of Africa, the Middle East and Asia is raising interest in the use of commodity hedging by governments as a way of containing social unrest. But it remains a challenge to get sovereign commodity hedging deals done, finds Alexander Osipovich

To much of the general public, the use of derivatives is seen as a dark art practiced by mysterious financial wizards. Often, this activity bursts into the spotlight only when things go wrong – for example, the $6 billion ‘London whale' loss at JP Morgan in 2012, or the €4.9 billion equity derivatives loss uncovered at Société Générale in January 2008. As a result, citizens may be understandably nervous upon learning that their own governments are trading derivatives.

But that's precisely what