Military

Russia’s Invasion of Ukraine Ravages Global Supply Chains

March 12, 2022Coffee or Die
Following orders from Russian President Vladimir Putin, Russian forces invaded Ukraine Feb. 24, 2022. Russian forces have faced stiff opposition from Ukraine’s military and wide economic and diplomatic sanctions from most global powers. Ukraine Ministry of Defense photo.

Following orders from Russian President Vladimir Putin, Russian forces invaded Ukraine Feb. 24, 2022. Russian forces have faced stiff opposition from Ukraine’s military and wide economic and diplomatic sanctions from most global powers. Ukraine Ministry of Defense photo.





As an expert in global supply chains, I think the war portends the end of something else: global supply chains that Western companies built after the Berlin Wall fell over three decades ago.


Supply chains – often vast networks of resources, money, information and people that companies rely on to get goods or services to consumers – were already in disarray because of the COVID-19 pandemic, resulting in massive shortages, disruptions and price inflation. The war and resulting sanctions against Russia have immediately put further strains on them, prompting skyrocketing energy prices and even fears of famine.


But beyond these short-term effects, I believe the war in Ukraine could drastically reshape global supply chains in a way the pandemic never did.



invasion of ukraine
The cost of filling up a car with gas soared after the US banned imports of Russian oil. AP Photo/Damian Dovarganes, via The Conversation.


Immediate effects: Fuel and famine


Russia accounts for less than 2% of global gross domestic product, while Ukraine accounts for only 0.14%. As a result, they have little direct impact on global supply chains – except in a few very important areas.


Let’s start with the most obvious one: energy. Russia supplies nearly 40% of Europe’s natural gas supply and 65% of Germany’s. It is the third-largest oil exporter in the world, accounting for 7% of all crude oil and petroleum product imports into the United States. After the Biden administration signaled it would stop importing Russian oil, the price of crude topped US$130 per barrel for the first time in 13 years, and consumers in some parts of the U.S. have seen average gasoline prices rise above $5 per gallon.


Less obviously, Russia and Ukraine account for nearly one-third of all global wheat exports. Several countries, including Kazakhstan and Tanzania, import more than 90% of their wheat from Russia. The war has the potential to disrupt the still-recovering global food supply chain and endanger the livelihoods of millions of people.


Even less obviously, Ukraine produces 90% of the semiconductor-grade neon used in the United States. Russia, on the other hand, provides the United States more than a third of its palladium, a rare metal also required to make semiconductors. Although companies have enough inventory to fulfill immediate needs and may find alternative suppliers, some disruptions are inevitable. And this comes at a time when the world is still suffering from a severe chip shortage, which has slowed auto production and sent new and used car prices soaring.



It is also worth noting that Russia is a dominant exporter of titanium and titanium forgings, which are popular in the aerospace industry because of their light weight. This war will further stress the aerospace supply chain.


invasion of ukraine
Russia’s invasion of Ukraine is going to stress global energy supply chains, pushing the world’s largest petroleum pumper, the US, to pump more. US Department of Energy photo.

Snarling trade



While the direct effects of the war on supply chains are relatively limited, the impact on the global movement of goods and services has been significant – I believe even greater than from COVID-19.


After 36 countries, including EU members, the U.S. and Canada, closed their airspace to Russian aircraft, Russia retaliated with the same restrictions. As a result, goods transported by air freight from China to Europe or the Eastern U.S. may need to be rerouted or use slower or more expensive modes of transportation. The China-Europe rail freight route that goes through Russia, which was experiencing a boom in 2021 because of congestion in major ports, now faces mounting cancellations from European clients.


The war has also had a devastating impact on global trade movements, with hundreds of tankers and bulk carriers stranded at ports as a result of sanctions imposed on Russian-connected ships. It has also resulted in severe travel and transport restrictions imposed on Russia and Belarus in an unprecedentedly rapid and broad manner that has been coordinated among multiple nations.


In addition, the disruption of the route from China to Europe and the U.S. could do severe damage to China’s “Belts and Roads” initiative. That’s the ambitious trillion-dollar project aimed at reshaping global trade and affirming the dominance of a China-centric global supply chain, especially in Europe and Asia. Because both Russia and Ukraine are critical links in the initiative, it will almost certainly need to scale back in size and scope.



invasion of ukraine
Russia went to war against Ukraine – even though both countries had McDonald’s. AP Photo/Rudi Blaha via The Conversation.

A supply chain Iron Curtain



The New York Times columnist Thomas Friedman, a true believer in globalization, in 1996 famously theorized that no two countries that both have a McDonald’s would ever fight a war against each other. McDonald’s has about 850 restaurants in Russia and 100 in Ukraine, all of which have now been temporarily closed.


His point was that countries with economies and middle classes big enough to support a McDonald’s “don’t like to fight wars; they like to wait in line for burgers.” It was also based on the belief that rational economic calculations will always triumph over geopolitical conflicts – that is, leaders in such countries wouldn’t let their differences get in the way of trade and making money.


And the supply chains that companies erected in the decades since then have crisscrossed the globe, ignoring old enemy lines for the sake of efficiency and higher profits.


Friedman now concedes Russia’s action has shattered that theory. I agree, and in fact the world may now be on the cusp of a new type of supply chain Iron Curtain with Russia and its allies on one side and the West on the other. Companies will no longer be able to separate business from geopolitics.



invasion of ukraine
A portion of the US strategic oil reserve in Louisiana. US Department of Energy photo.

And those allies include China, which remains pivotal to most Western companies’ supply chains. Despite China’s ambiguous stance on the invasion, the war will likely serve as a catalyst to reduce that dependence, at least for critical products such as materials used for semiconductor manufacturing, medical supplies and electric batteries.



Moreover, the growing emphasis of shareholders and regulators on environmental, social and governance issues means how a company does in each category can affect its daily operations and cost of capital. On the issue of Ukraine, the push to be more socially responsible is one reason companies have overcomplied with sanctions. It’s also prompting them to proactively avoid geopolitical risks, which can involve retreating from an entire economy.


Russia’s war against Ukraine is still ongoing, and there’s no way to know for certain how long the sanctions will remain in place or whether companies that have chosen to leave Russia will return. But I believe one thing is certain: Global supply chains, like the rest of the world, will never be the same again as a result of this war.


 



This story appeared first in The Conversation on March 11, 2022. The Conversation is a community of more than 135,400 academics and researchers from 4,192 institutions. 


 


Read Next: Feds: Putin’s Willing Spy and Secret Social Influencer in US Fled to Russia 



Coffee or Die
Coffee or Die

Coffee or Die is Black Rifle Coffee Company’s online lifestyle magazine. Launched in June 2018, the magazine covers a variety of topics that generally focus on the people, places, or things that are interesting, entertaining, or informative to America’s coffee drinkers — often going to dangerous or austere locations to report those stories.

More from Coffee or Die Magazine
Coffee Or Die Photo
From the Team Room to Team Room Design: An Operator’s Creative Journey

BRCC partners with Team Room Design for an exclusive T-shirt release!

Coffee Or Die Photo
Get Your Viking On: The Exclusive 30 Sec Out BRCC Shirt Club Design

Thirty Seconds Out has partnered with BRCC for an exclusive shirt design invoking the God of Winter.

Grizzly Forge BRCC shirt
Limited Edition: Grizzly Forge Blades on an Awesome BRCC Shirt

Lucas O'Hara of Grizzly Forge has teamed up with BRCC for a badass, exclusive Shirt Club T-shirt design featuring his most popular knife and tiomahawk.

BRCC Limited Edition Josh Raulerson Blackbeard Skull Shirt
From Naval Service to Creative Canvas: BRCC Veteran Artist Josh Raulerson

Coffee or Die sits down with one of the graphic designers behind Black Rifle Coffee's signature look and vibe.

Medal of Honor is held up.
Biden Will Award Medal of Honor to Army Helicopter Pilot Who Rescued Soldiers in Vietnam Firefight

Biden will award the Medal of Honor to a Vietnam War Army helicopter pilot who risked his life to save a reconnaissance team from almost certain death.

dear jack mandaville
Dear Jack: Which Historic Battle Would You Want To Witness?

Ever wonder how much Jack Mandaville would f*ck sh*t up if he went back in time? The American Revolution didn't even see him coming.

west point time capsule
West Point Time Capsule Yields Centuries-Old Coins

A nearly 200-year-old West Point time capsule that at first appeared to yield little more than dust contains hidden treasure, the US Military Academy said.

  • About Us
  • Privacy Policy
  • Careers
Contact Us
Contact Us
© 2024 Coffee or Die Magazine. All Rights Reserved