Russia’s decision to invade Ukraine has had far-reaching implications, affecting lives and businesses beyond the border of conflict. World trade and the global supply chain have been disrupted and the economic impact is being felt around the world.
The initial impact of the invasion
Russia and Ukraine are major suppliers of energy, agriculture, and metals, meaning that the impact on these industries has been notable. The sanctions imposed by the United States and Europe have had a deepening effect.
Energy
Countries around the world rely on Russia for essential supplies. For example, Russia provides approximately 40% of Europe’s natural gas and 25% of the country’s oil. The reduced supply leads to increased demand and caused prices to soar.
Even countries that don’t rely directly on Russia can feel the pinch. Consider that oil prices are set by the global market, with changes having a worldwide knock-on effect. Petrol prices hit a record high as oil and gas costs soar, with oil jumping to $139 a barrel, the highest its been for nearly 14 years.
Agriculture
Russia is the main provider of several agricultural commodities including wheat, soybeans, corn, and oilseeds. The sanctions have cut off significant access to these commodities.
Looking at wheat as a single example, food security is threatened without Russia’s 80 million metric tons of wheat a year (of which nearly 30 million tons are exported) and Ukraine’s 20 to 25 million tons of exported wheat a year.
Metals
Russia is the world’s largest exporter of palladium, which is essential for the automotive supply chain and other technological manufacturing operations. With the sanctions, 20% of the global market’s palladium has been restricted, causing a major supply chain bottleneck.
Other metals are also in limited supply, such as aluminum, copper, cobalt, and nickel. Some of the rare metals found in Russia contribute to the smooth operations of various medical and tech manufacturers, and the strained supply chain is slowing economic activity.
The impact of the trade bans
The USA's decision to impose trade bans on Russia and Ukraine has not come without consequence, and the ripple effect has put a major strain on global supply chains.
The US weighs the ban on Russian imports
The uncertainty of the future of the conflict is making the supply chain process difficult to manage, leaving many concerned about food security, energy supply and the production of key technologies.
The White House has made comment, saying, “We are looking at ways to reduce the import of Russian oil while also making sure that we are maintaining the global supply needs out there."
Yet the crisis has already exacerbated the situation for many global businesses reliant on Russian resources.
Impact on Germany
Depending on the trade relations of each country, certain countries will be hit harder than others.
Germany, in particular, will be affected by the crisis and subsequent trade bans. Consider that Germany is a leading foreign trade partner of Russia, totaling a value of ~$57,000 million in 2021. As a part of the European Union, Germany has imposed the same sanctions on Russia and directly lost access to energy needed for manufacturing and electricity.
Dangerous supply disruptions and further price shocks
Supply disruptions don’t only impact a singular commodity. For example, disruption to oil impacts the global GDP growth, manufacturing, transportation, and other industries.
Daily operations are being impacted, from simple tasks such as driving to work to more complex activities such as rolling out new technology. Even more concerning is the shortage of natural gas for fertilizer and smaller harvests driving the food prices.
Yet the show must go on, and many of these commodities are essential for daily processes. Without any sign of the trade ban being lifted, prices are expected to soar and cause governments, businesses, and individuals to prioritize their resources.
Economic sanctions and rising cyber repercussion
The swift response by the west has also introduced the threat of a cyber-attack from Russia. Russian cyber forces have been working to find vulnerabilities for years, and there’s the risk that these weaknesses will be manipulated.
Russia has demonstrated their ability to pull off a cyber-attack in the past. Consider the compromise of SolarWinds monitoring software which put nearly 30,000 private and public entities in hot water, allegedly at the hands of Russian hackers. Many are concerned that a cyber-attack may happen again.
Global repercussions
Forbes reports that an estimated 374,000 businesses around the world rely on Russian suppliers. Of these businesses, approximately 90% are based in the United States. An additional 241,000 businesses rely on Ukrainian suppliers, of which 93% are based in the United States.
While some countries, such as the UAE, have voiced neutrality, the impact on stock markets, supply chain, and geopolitical tensions will undoubtedly affect everyone in one way or another.
The invasion has also put a lot of pressure on certain countries to stand up against Russia. For example, China has a history of being a trade ally with Russia, but countries around the world are calling for China to stand up against the invasion. Regardless of their decision, there will be economic and geopolitical consequences.
Advice for executives
As a business leader, it’s important to remain updated on global happenings and their impact on business and growth. Consider the following efforts to streamline operations during this uncertain time (and beyond).
- Strive for an understanding of your supply chain - better understanding will lead to better management, especially when experiencing disruptions
- Take advantage of data technology - technology can help navigate shifts in supply chain capacity
- Define the supply chain process - consider customer service and various data points to manage demand amid a crisis
- Prioritize flexibility and agility - logistics need to be adaptable to various shifts in the process
Global business is a volatile and unpredictable landscape, which is why planning for change is essential to any business strategy. As global trade and geopolitical relationships continue to shift, it’s important to be innovative in strategy, continuously research and study key data points.
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