The Ukraine – Russia Conflict and Its Effect on The Global Supply Chain
In recent weeks, the Russian-Ukrainian conflict has escalated with Russia’s attacks in Ukraine after the Russian government recognized the independence of the separatist regions Donetsk and Luhansk on February 21. Considering that two major exporting countries are on the line, this conflict will have short-term and long-term effects on the global economy. Even though it is hard to predict how the situation will develop, here are a few of the risks that international shipping and the global supply chain might face due to the recent escalation between Ukraine and Russia.
An increase in commodity prices might affect the global supply chain
Russia is a major oil and gas exporter, with more than a third of Europe’s natural gas is supplied by Russia. Therefore, fuel prices are likely to rise due to the war between Russia and Ukraine. Especially since the US and Europe are about to impose heavy sanctions on Russia. So far oil costs jumped to 105$ which is the highest since 2014. Hence, a higher fuel price would be the first possible consequence, which would affect all international shipping and global supply chains. The prices of marine bunker fuel are influenced by the costs of Brent crude oil, which is the biggest cost for container lines. A rise in fuel price eventually falls to cargo shippers and disrupts the global commodity flow.
In addition, metal markets may also suffer supply issues due to the conflict. Russia controls almost 10% of global copper reserves not only, but Russia is also a producer of nickel and platinum. And Ukraine on the other hand supplies nearly 70 percent of the world’s neon gas, which is needed for the chip-making process. A disruption in neon supply from Ukraine can worsen the Chip shortage
The Ukraine-Russia conflict might also lead to food inflation
Besides raw materials, this area has an important part in the food supply, in fact, Russia and Ukraine combined are supplying almost 30 percent of the world’s wheat. The two countries are also major exporters of sunflower oil, rye, and corn. This means that those two countries are the first step in the food chain. Hence, any supply disruption in these countries will lead to a worldwide food price rise. By now European wheat already jumped by 20% since the war started. In addition to the local agricultural export affected, Russia is one of the biggest fertilizers exporters. Therefore, sanctions on Russia may also influence crop yields that possibly will increase food inflation. All of these may add costs to food commodity which is already at their peak.
Cyberattacks are another way that the current situation can impact the global supply chain. As well as Ukrainian ports, Russia might also target ports in countries that are members of NATO and even the United States in retaliation for economic sanctions. Those attacks may adversely affect the global supply chain, which is already struggling to cope with multiple disruptions.
What can you do to protect your business?
One way to defend your business against price fluctuations when importing is to always stock up in advance. Also, consider importing alternatives for a while. That will give you more time to decide what steps to take next.
As for cybersecurity, the key is to identify vulnerabilities on time. Install a firewall, backup your important data and consider performing an overall assessment with a cybersecurity specialist from time to time. Although cyber vulnerabilities exist anywhere, being aware of them will allow you to be prepared for any case and reduce the damage in case of a cyberattack.
Right now, it’s hard to say what the Ukraine-Russia conflict will bring, and a lot depends on how long it lasts. At the moment, all you can do is stay safe and prepare your supply chain for any instance.
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