Impact of Russia-Ukraine 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 huge risk facing global supply chains has shifted from the pandemic to the Russia-Ukraine military conflict and the geopolitical and economic uncertainties it has created, Professor Jean-Noël BEKA BE NGUEMA says.

In recent decades, key sectors of the global economy have increasingly relied on both Russia and Ukraine to support global supply chain networks. Russia and Ukraine are among the world’s biggest producers and exporters of some food products, these are the top two sunflower oil producers, respectively accounting for 60 percent of global production.

Since the outbreak of the conflict between Russia and Ukraine, the United States has been escalating unilateral sanctions against Russia and coercing the world to take sides.

According to the Professor Jean-Noël BEKA BE NGUEMA, U.S. increased sanctions on Russia will not help solve the problem. Instead, it will bring serious negative effect to Russia, Europe, and the world, leading to global inflation, supply chain shocks and slowing economic recovery.

Russia has more than 600 billion U.S. dollars of foreign exchange reserves, but after the outbreak of the conflict between Russia and Ukraine, nearly half of the reserves were frozen by the West, the latest move of the United States is clearly a limit sanctions, intended to Russia into a corner.

At the same time, the US plans to announce a new package of sanctions on Wednesday local time, including ban on all new investments in Russia.

In this perspective, there are several channels through which the conflict significantly impacts on the world economy. First, the Ukrainian and Russian economies are key suppliers of commodities, including titanium, palladium, and corn.

Second, disruptions to the supply chain of these commodities would eventually keep prices high, intensifying for users of such commodities (including car, smartphone, and aircraft makers).

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

Fourth, Russia’s exports of nickel, palladium, aluminium, and platinum account for 49 percent, 42 percent, 26 percent and 13 percent, respectively; Ukraine has 70 percent of the global market for neon, 40 percent for krypton and 30 percent for xenon, while the U.S. relies on Ukraine for 90 percent of its supply.

Lastly, significant escalation on energy prices due to Russia being one of the world’s largest oil producers and energy exporters, will lead into higher inflation.

In addition, the Russia-Ukraine conflict has also adversely impacted the supply chains in both countries. Due to sanctions, Russian exports are restricted, and Ukraine’s ports are closed due to war. Before the pandemic, 35 percent of global freight was transported by air.

However, the decision of EU countries to close their airspace to Russian aircraft and cargo has badly affect Russia-Europe and Europe-Asia air ties.

On the one hand, Russia is the world’s second-largest producer of natural gas. The Russia-Ukraine conflict demonstrates 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 amounts of grain, vegetables, sugar beets, sunflower seeds, milk, and meat.

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

Therefore, if the United States really wants to ease the situation in Ukraine, it should stop pouring oil on fire, stop wielding the big stick of sanctions, and truly promote peace talks for more sustainable peace between Russia and Ukraine.

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