Russia – Ukraine war and sanctions: Any implications for global supply chains?

The Russia – Ukraine War and the resulting sanctions by the West pose major economic blowback to the entire world. The collateral damage will depend on how far the West goes in its economic warfare against Russia.

According to reports, Russia ranks number one, two and three respectively among the world’s exporters of natural gas, oil and coal. Europe gets the bulk of its energy supply from its eastern neighbour – Russia. There are reports that Russia also, accounts for half of the USA’s uranium imports.

It was equally learnt that Russia supplies a tenth of the world’s aluminum and copper and a fifth of battery grade nickel. Russia’s dominance in precious metals such as palladium, which is very vital in automotive and electronics industry is significant.

It was further stressed that the Russia’s invasion of Ukraine will worsen existing situation. But a commentator was of the opinion that if one of the leading elements of Cold War was mutual suspicion, then the world is fully back into it.

Interestingly, Russia is a vital source of wheat and fertilizer. Its exports of raw materials have been placed on embargo by the West. And as the ban continues, some economists have predicted that the world’s Gross Domestic Product (GDP) could be negatively impacted.

The international community expects commodity prices for energy and raw materials to rise as the war has increased global grain prices. There is prediction that Middle Eastern government bread subsidies could be endangered while oil – market effects could harm sub-Saharan African importers and destabilise trade balances.

In poorer countries where fuel and food form the bulk of people’s spending, the backlash could be more violent. We may recall that food – price hike between 2007 and 2008 led to civil unrest in many countries. Did the international community learn any lesson? Not really! Today, there are signs of panic and unrest in most African countries and many other parts of the world.

Francis Fukuyama, an American writer and political theorist who in his book “The End of History and the Last Man” once described the collapse of the former Soviet Union as the “end of history.” Can one say without any fear of contradiction that Russia’s invasion of Ukraine is the “end of the end of history?”

Can we say that Putin’s aggression signals a withdrawal of the ideals of a free Europe that emerged after 1991? Some public intellectuals are of the view that Putin’s aggression may signal the beginning of a new Cold War, with a political boundary separating Russia from the West as was the case between 1945 and 1991.

In view of overwhelming sanctions on Russia, some foreign affairs experts ask: Is the war the end of globalization? These experts argued that populists and nationalists have erected barriers to free trade, investment, immigration and the spread of ideas, especially in the USA. And that China’s challenge of the long-standing international economic system and security arrangements in Asia has encouraged the West to erect barriers against Chinese economic integration.

It was further stressed that the Russia’s invasion of Ukraine will worsen existing situation. But a commentator was of the opinion that if one of the leading elements of Cold War was mutual suspicion, then the world is fully back into it.

Some global supply chain experts are of the view that the Russia – Ukraine War portends the end of something else: Global supply chains that Western firms built after the Berlin Wall fell over three decades ago is disrupted and in a state of confusion. Supply chains – a vast networks of systems, people, activities, funds, information and resources which an organization relies on to supply goods or services to consumers worldwide – have been in disorder since the breakout of COVID – 19 pandemics.

Read also: Global oil price surges on rising Russian sanctions – IEF

The implication is massive shortages, disruptions and price inflation globally. The on-going Russia – Ukraine War and the barrage of sanctions against Russia have put further strains on the belligerent nations, prompting rising energy prices and even fears of famine.

Beyond these short-term effects and the maritime boundary disputes between Russia and Ukraine, the war could drastically reshape shipping routes and global supply chains in a manner that was not experienced during the pandemic lockdown.

What are the immediate effects of increasing fuel prices and famine because of the war? With a population of over 146 million people, Russia, we were told accounts for less than 2 percent of global GDP, while Ukraine, a nation of barely 43 million people accounts for only 0.14 percent.

Africa with a population of over one billion people contributes only about 3 percent of global GDP. So, are we correct to say that the war may have little impact on global supply chains? However, a few main areas of concern are energy and food.

With respect to energy, Russia has nearly 40 percent of Europe’s natural gas supply and 65 percent of Germany’s, according to statistics. Russia is the third – largest oil exporter in the world, accounting for 7 percent of all crude oil and petroleum product imports into the USA.

We have seen that after the Biden administration placed an embargo on Russian oil, the price of crude oil skyrocketed to almost $130/ barrel for the first time in 13 years. And consumers in some parts of the USA had to buy gasoline for about $5 per gallon.

Considering the impact of the war on food, Russia and Ukraine account for nearly one – third of all global wheat exports. Many countries including Tanzania, Nigeria, Egypt, Turkey, Bangladesh and Kazakhstan, among others, import their wheat from Russia. That is why the UN has warned that the war has a potential to disrupt the weak but recovering global food supply chain, and endanger the livelihoods of millions of people.

The world may now be on the cusp a new type of “supply chain iron curtain” with Russia and its allies on one side and the West on the other. Will companies be able to separate business from geopolitics? This remains a question to be answered by CEOs of global firms and international relations experts. Talking of allies, one has to mention that China remains pivotal to most Western companies supply chains. Despite China’s uncertain stance on the invasion, the war will likely serve as a catalyst to reduce that dependence, at least for critical products such as semiconductors used in manufacturing of sophisticated electronic devices.

All said, Russia’s war against Ukraine is still ongoing. No one can predict accurately how long the sanctions will remain in place or whether firms that have relocated from Russia will return. But one thing is certain: Global supply chains, like the rest of the world will never remain the same again as a result of the Russia – Ukraine war.

Thank you