The war in Ukraine is threatening further disruption to already stretched . Ukraine and Russia may only account for a small proportion of the imports of major manufacturing nations like and the , but they are of raw materials and energy for many crucial supply chains.
Though the economic consequences of a war that threatens the lives and livelihoods of many Ukrainians will always be secondary to the looming humanitarian crisis, here are five areas likely to see trouble ahead:
Many European countries are on Russian energy, particularly gas through several vital pipelines, and this may have coloured their approach to the crisis. Russian gas reliance has been suggested as the reason Europe has to remove Russia from the international payments system SWIFT, for example, though it’s worth pointing out that the Germans have new Baltic gas pipeline Nord Stream 2.
While a complete suspension of Russian gas flows is unlikely at the moment, even small disruptions will have a . Global gas reserves are low due to the pandemic and energy prices are already rising sharply, and industry.
With gas an essential input to many supply chains, disruptions to such a fundamental supply will have widespread economic consequences. When gas prices first surged in autumn of 2021, for instance, in the UK shut down as high energy cost made production untenable. This led to shortages of carbon dioxide, which is essential for everything from medical procedures to keeping food fresh. Such consequences are likely to magnify with rising oil and gas prices.
already rose sharply during 2021 due to everything from higher energy prices to climate change. Food producers are likely to come under further pressure as rise now.
Russia and Ukraine together account for more than a quarter of , while Ukraine alone makes up almost half of . Both are key commodities used in many food products. If harvesting and processing is hindered in a war-torn Ukraine, or exports are blocked, importers will replace supplies.
in other parts of the world could help to reduce the impact of interruptions to food supplies. However, Russia is also a main supplier of key ingredients , so trade sanctions could affect production elsewhere. Meanwhile, we can also expect diversions to trade flows: China has already said it will Russian wheat, for instance.
With global transport already severely disrupted in the aftermath of the pandemic, a war could create further problems. The transport modes likely to be affected are ocean shipping and rail freight.
Since 2011, regular rail freight links between China and Europe have been established. Recently, the made the journey. While rail carries only a small proportion of the total freight between Asia and Europe, it has played a vital role during recent transport disruptions and is growing steadily.
Trains are now being rerouted away from Ukraine, and rail freight experts are that disruptions will be kept to a minimum. However, countries like Lithuania are expecting to see their severely affected by sanctions against Russia.
Even prior to the invasion, ship owners started to shipping routes, and insurance providers demanded notification of any such voyages. Although in the Black Sea is a relatively niche market on the global scale, one of the largest container terminals . If this is cut off by Russian forces, the effects on Ukrainian imports and exports could be considerable, with potentially drastic humanitarian consequences.
Rising oil prices due to the war are a more generally. are already extremely high and could rise even further.
There is also a worry that could target global supply chains. As trade is highly dependent on online information exchange, this could have far-reaching consequences if key shipping lines or infrastructure are targeted. The from a supply chain cyber attack can be enormous.
Russia and Ukraine of metals such as nickel, copper and iron. They are also largely involved in the export and manufacture of other essential raw materials like neon, palladium and platinum.
Fears of sanctions on Russia have increased the price of these metals. With palladium, for example, the current trading price of almost US$2,700 per ounce, up over 80 percent since mid-December. Palladium is used for everything from automotive exhaust systems and mobile phones to dental fillings. The prices of nickel and copper, which are used in manufacturing and building respectively, have also also been soaring.
The aerospace industries of the US, Europe and Britain also depend on from Russia. have already approached alternative suppliers. However, the market share and product base of leading Russian supplier VSMPO-AVISMA make it impossible to fully diversify away from it, with some of the aerospace manufacturers having signed long-term supply contracts up to 2028.
For all these materials, we can expect disruptions and potential shortages, threatening to lead to increased prices for many products and services.
Shortages of microchips were a major problem throughout 2021. Some analysts had been predicting that this problem , but recent developments might dampen such optimism.
As part of the sanctions towards Russia, the US to cut off Russia’s supply of microchips. But this rings hollow when Russia and Ukraine are such of neon, palladium and platinum, all of which for microchip production.
About , which is used for chip lithography, originates from Russia, and 60 percent of this is purified by one company in Odessa. Alternative sources will require long term investments prior to being able to supply the global market.
currently hold an excess of two to four weeks’ additional inventory, but any prolonged supply disruption caused by military action in Ukraine will severely impact the production of semiconductors and products dependent on them, including cars.
(Sarah Schiffling is a Senior Lecturer in Supply Chain Management, Liverpool John Moores University. Nikolaos Valantasis Kanellos is a Lecturer in Logistics at Technological University Dublin. This article was originally published on The Conversation. Read the original article here.)