Impact of the Russian-Ukrainian conflict on global supply chains

Professor Jean-Noël Beka Be Nguema, Department of Management, International University of Rabat
Professor Jean-Noël Beka Be Nguema,
Department of Management, International University of Rabat

The enormous risk facing global supply chains has escalated from the pandemic to the Russian-Ukrainian military conflict and the geopolitical and economic uncertainties it has created.

Over the past few decades, key sectors of the global economy have increasingly relied on Russia and Ukraine to support global supply chain networks. Russia and Ukraine are among the world’s largest producers and exporters of certain food products, they are the two main producers of sunflower oil, accounting for 60% of world production respectively.

Since the beginning of the conflict between Russia and Ukraine, the United States has stepped up unilateral sanctions against Russia and forced the world to take sides.

I think increasing US sanctions against Russia will not help solve the problem. Instead, it will have serious negative effects on Russia, Europe, and the world, leading to global inflation, supply chain shocks, and slowing economic recovery.

Russia has more than US$600 billion in foreign exchange reserves, but after the outbreak of the Russia-Ukraine conflict, nearly half of the reserves were frozen by the West, the latest move by the US is clearly a limitation of sanctions, aimed at Russia in a corner.

Meanwhile, the United States plans to announce a new sanctions package on Wednesday local time, including a ban on all new investment in Russia.

From this perspective, there are several channels through which the conflict has a significant impact on the global economy. First, the Ukrainian and Russian economies are major suppliers of raw materials, including titanium, palladium and corn.

Second, disruptions to the supply chain of these products would eventually keep prices high, escalating for users of these products (including car, smartphone and aircraft manufacturers).

Third, for Europe, wars and sanctions have led to refugee flows, capital outflows and energy shortages. For the United States, war and sanctions allowed the United States to profit from chaos.

Fourth, Russian exports of nickel, palladium, aluminum and platinum account for 49%, 42%, 26% and 13% respectively; Ukraine holds 70% of the world market for neon, 40% for krypton and 30% for xenon, while the United States depends on Ukraine for 90% of its supply.

Finally, a significant escalation in energy prices, due to Russia being one of the largest oil producers and energy exporters in the world, will cause inflation to rise.

In addition, the Russian-Ukrainian conflict has also had a negative impact on the supply chains of both countries. Due to sanctions, Russian exports are restricted and Ukrainian ports are closed due to the war. Before the pandemic, 35% of global freight was transported by air.

However, the decision of EU countries to close their airspace to Russian aircraft and cargo has seriously affected Russia-Europe and Europe-Asia air relations.

On the one hand, Russia is the world’s second largest producer of natural gas. The Russian-Ukrainian conflict shows how interconnected the economies of Russia and Europe have become and why it may be able to leverage its influence.

On the other hand, Ukraine remains a major agricultural exporter of substantial quantities of cereals, vegetables, sugar beets, sunflower seeds, milk and meat.

History and reality have proven that sanctions will not bring peace and security, they will only lose. In today’s era of globalization, countries around the world have formed a close relationship, problems in one region can set off a chain reaction.

Therefore, if the United States is serious about calming the situation in Ukraine, it must stop pouring oil on the flames, stop wielding the big stick of sanctions and really promote peace talks for a more lasting peace between Russia and Ukraine.

Opinion piece: The author is Professor Jean-Noël Beka Be Nguema from the Department of Management of the International University of Rabat.

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