Between 25% and 30% of the world's supply of palladium, a precious metal embedded in engine exhausts to reduce emissions, is mined in Siberia by Norilsk Nickel (Nornickel).

U.S. and British politicians have threatened sanctions on Russian companies and people with close links to the Kremlin if Russia attacks its neighbour.

The United States briefly added Rusal, which is one of Nornickel's largest shareholders and accounts for around 6% of global aluminium production, to its sanctions list in 2018, pushing aluminium prices up about 35%.

Russia is also a significant producer of resources including oil, natural gas and titanium.

Spot palladium rocketed from around $1,900 an ounce on Jan. 18 to $2,449.50 on Monday before easing to around $2,370.

(Graphic: Palladium rallies: https://fingfx.thomsonreuters.com/gfx/ce/zdvxoanrypx/PALL%20GRAPHIC%20PRICE.JPG)

"Consumers are stockpiling," said a trader in London, adding that the cost of borrowing palladium had risen, as had the premium -- or backwardation -- for immediately available metal over contracts for later delivery.

Speculators have abandoned some bets on lower prices, buying back positions and helping push prices higher.

Their net short position on the NYMEX exchange fell to 2,082 contacts representing 208,200 ounces by Jan. 25, the most recent available data, from almost 3,400 contracts a week earlier.

(Graphic: Palladium positioning: https://fingfx.thomsonreuters.com/gfx/ce/jnvwelxwwvw/PALL%20GRAPHIC%20POSITIONING.JPG)

The market is, however, better supplied than between 2016 and 2020, when deficits sometimes pushed lease rates 40 times higher than current levels and palladium prices surged from around $500 an ounce to around $3,000.

One-month forward rates, a proxy for lease rates, have risen to 0.75% compared with highs of around 30% in 2018 and 2020.

(Graphic: Palladium forward rates: https://fingfx.thomsonreuters.com/gfx/ce/znpnejkzevl/PALL%20GRAPHIC%20FORWARD%20RATES.JPG)

Many analysts expect palladium to move into surplus, and for prices to fall, as automakers switch to cheaper platinum to clean exhaust fumes and as electric vehicles without emissions gain market share.

But in the short term, a recovery in auto production from last year's low levels should help prices, said Citi analyst Max Layton, who expects the 10 million ounce a year palladium market to be undersupplied by 446,000 ounces in 2022.

And unless Russia stands down, "there's going to be a risk premium for palladium for a while," he said.

(Graphic: Palladium moving away from deficits: https://fingfx.thomsonreuters.com/gfx/ce/zgpomjkrkpd/PALL%20GRAPHIC%20BALANCE%20MF.JPG)

(Reporting by Peter Hobson; editing by Pratima Desai and Alexander Smith)

By Peter Hobson