What impact do escalating tensions between Ukraine and Russia have on the global supply chain? Many think that the threat of war is being exaggerated, Ukraine’s President has been quoted as saying that the Western media has been inflating the likelihood of full-blown conflict.
However, given the volatility of the situation those working across the value chain should be poised to formulate and implement contingency plans should political tensions continue to escalate. Despite major forewarnings of impending conflict, many businesses are yet to devise a strategy to protect their supply chains.
Potential impact for the global supply chain:
Even a minor conflict between Russia and Ukraine could trigger a huge spike in oil and gas prices across Europe. Russia currently provides Europe with approximately 30% of its oil and 35% of its natural gas. In the event of conflict, this supply would be cut off causing a surge in oil prices. According to Rabobank, the Dutch multinational banking business, oil prices could increase from a current rate of US $90 per barrel to $125, with the potential for this to climb even higher if serious sanctions against Russia are imposed.
Russia is the world’s largest producer of wheat and Ukraine is the world’s fifth (Ukraine is also a top exporter of barley and rye). With coffee and grain prices already skyrocketing as a result of inflation in the United Kingdom, the potential financial ramifications of a Russia-Ukraine conflict could be significant. A continued rise in inflation would severely impact the livelihoods of many; we have already witnessed the pressure families have faced due to rising energy prices over the past couple of months. Furthermore, the price of metals would also be significantly impacted by this conflict as Russia produces 49% of the world’s nickel supply which impacts the price of everything ranging from kitchenware, phones, buildings through to power.
The global impact:
It would be naïve for any international businesses to assume that they are safe from any political fallout taking place in the Ukraine. Modern day global supply chains are inextricably linked in subtle and complex ways. Many companies may not realize how they will be affected by this conflict until the situation comes to fruition. Risk Management company Interos recently revealed that over 1,100 US-based firms and over 1,300 EU-based firms have “at least one direct supplier in Russia.”
We all hope for a peaceful resolution, but even if tensions subside, it still remains likely that prices will continue to rise across the globe.
What we are witnessing?
- Forward-thinking businesses are conducting risk based audits to evaluate how much exposure and what linkage their supply chain has to the Ukraine crisis.
- Investigating alternative suppliers and/or increasing their inventory stockholding.
- Closely monitoring commodity prices and mapping out their supply chains accordingly.
- Switching from a just-in-time supply chain model to a just-in-case model. You can read our article on the topic here: “Are just-in-time supply chains a thing of the past?”
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by Brad Knoxview my profile