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Russia’s attack on Ukraine: Impacts on the global supply chain


With war unfolding in parts of Ukraine provoked by Russian military forces, there are growing fears as to what will happen to the global economy as a result of this devastating conflict, and how the global supply chain will be affected even further.


There are great concerns regarding the global supply of energy, with Europe relying on Russia for ¼ of its oil and more than ⅓ of its gas. With the ongoing conflict, Russia will most likely cut off its oil and gas supplies to other countries, and thus will greatly decrease the supply of these natural resources that countries have access to. Worries of global energy supplies have seen crude oil prices exceed $150 a barrel and a 70% increase in price for European natural gas prices, with prices being likely to continue rising. Oil and gas providing companies and firms have been forced to raise their prices, since they will simply not be able to provide enough energy as they were before. Opec, an organisation ensuring the stabilisation of oil markets, has already been struggling to meet output following the easing of Covid restrictions, and with the addition of the Russian sanctions on crude oil, it will inevitably see further price rises for oil. These price rises will further increase the cost of living crisis in many countries, and in the UK, with high inflation already rapidly decreasing the cost of living, a sharp rise in the price of energy will see an even further deterioration of the UK households real income.


Another concern to the global economy is the supply of wheat. Russia and Ukraine produce 14% of global wheat and are also the largest exporters of corn and sunflower oil. Russia has also blocked Azov (a sea connecting to the Black sea which leads to Europe) which will cause havoc on grain markets, where 90% of Ukrainian grain exports are transported by this sea. With a key component of food production being supplied less in many countries, it would lead to a shortage of food for populations, and many countries which rely heavily on Ukrainian exports of wheat, such as Libya and Yemen, already have food insecurities, and so a further disruption in the supply chain of wheat could have devastating effects on many people across the world. And with the supply of wheat being limited, this would cause the prices for most food products to increase, leading to an increase in the cost of living for the countries dependent on wheat from this region.


Russia is also a large producer of copper, aluminium and nickel so a rise in metal prices have already been observed, due to Russia disrupting the exports of these metals. Polymetal (a Russian gold and silver producer) has seen a 35% fall in market value as investors are concerned of potential sanctions. These potential sanctions could impact many infrastructure projects in countries that are reliant on these Russian produced metals, and could also impact the production of many other goods which require these metals.


In general, the supply chain will be greatly affected as a result of this conflict, and the reliance on certain products from the area will heavily impact many countries and will lead to shortages for the foreseeable future, unless cooperation is possible.

 

Researched by Ibrahim Ahmed

Written by Matteo Malefora


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