How the Russian-Ukrainian War has Intensified Global Supply Chain Issues

Supply chain issues have continued to run rampant, affecting everyone on the production line, from shippers and manufacturers to the consumers on the receiving end. While we initially blamed these supply chain issues on the impact of the global pandemic and climate-related disruptions, now the Russian-Ukrainian conflict is further interfering with an already unstable supply chain. 

On February 24, 2022, Russia invaded Ukraine. This invasion has devastated Ukraine, but it has also restricted the world’s access to vital resources, as factories have shut down and shipping routes have closed. 

For instance, Russia and Ukraine are major exporters of grain, such as corn, wheat, and barley, which other countries heavily rely on, especially Egypt—the world’s top wheat importer. In fact, Egypt receives 80% of its supply from Russia and Ukraine alone. As importers can’t access grain due to the conflict, shortages will cause rising food prices, leading to political unrest, conflict, and even hunger crises. 

In addition to grain, many are dependent on Russia and Ukraine’s nitrogen and mineral fertilizers. Farmers all around the world, from the American midwest to Brazil, use these fertilizers on their crops. Without access to these fertilizers—or without being able to pay the steep price hikes—farmers will not yield their usual crops, which may further intensify global food shortages. 

Ukraine is also responsible for supplying half of the world’s neon gas, used to produce semiconductor chips. These chips are an important component in the production of electronic devices, such as laptops, computers, and even cars.

But because Ukraine can no longer run its semiconductor plants while under attack, the price of these semiconductors is likely to surge while exasperating the already short supply. Although other companies could begin producing their own neon, it would take months or even years to ramp up, meaning this shortage will only worsen in the meanwhile. 

What’s more, the U.S. and U.K. have voiced their opposition to the conflict by imposing sanctions on Russia, such as trade restrictions and port bans, which are increasingly impacting the global supply chain. For example, the U.S. has prohibited all exports, imports, re-exports, and supply of any goods, services, or technologies directly and indirectly between the U.S. and the Crimea region. This includes banning Russian oil, natural gas, and coal. While these sanctions place pressure on Russia, they also impact the rest of the world, causing bottlenecks in the shipping industry, limited access to these resources, and rising prices, all of which will only worsen humanitarian crises. 

In response, Russia has retaliated against these sanctions, demanding countries that are still purchasing Russian natural gas to do so in rubles with the hopes of bolstering the Russian economy. Yet many countries have already vowed against giving into these demands as they go against current contracts. Russia is also turning to China for support, but there is doubt as to whether China can single-handedly restore the economic losses Russia is facing with the larger Western world. However, the U.S. has suggested that it will impose sanctions on China if it aids Russia’s invasion.

As of 2020, China was the largest source of imports for the U.S. and its third-largest export market, so Chinese trade sanctions would cause even more disruption to the supply chain. 

So, how will the Russia-Ukraine conflict affect the market? We can expect to see stalled global growth, inflation, a volatile stock market, and a weakened free market. The Russian stock market has already collapsed, and the ruble has lost much of its value, which will surely negatively impact the larger economy due to our interconnectedness and globalization. 

As the Western world works to stabilize the economy, we will see a drastic shift from globalization to localization. Western companies are likely to reduce their reliance on Russia and turn to more localized sourcing and manufacturing options.

For instance, Intel plans to build two semiconductor factories on American soil. Meanwhile, the U.S. government is starting to invest more in American infrastructure, ports, and airports to accommodate these localization efforts. 

That said, this shift will not happen overnight, so these supply chain issues and their devastating effects, from supply shortages to price surges, are here to stay for a while. And as the war continues, we can only assume these issues will have a long-lasting and far-reaching impact on the global economy.