How Global Trade Responds to Russia’s Invasion of Ukraine: Report

How global trade responds to Russian aggression on Ukraine: report


Beaten but not damaged: how global trade responds to Russia’s invasion of Ukraine

Russia’s first McDonald’s store opened in 1990, just months after the fall of the Berlin Wall.

It is a powerful symbol that the Cold War is over and the healing of ideological wounds is great.

Now every McDonald’s in Russia is closed, as countries and companies reduce, suspend or sever ties in response to the Ukrainian invasion.

The scale of the economic sanctions imposed on Russia is unprecedented. It has been suggested this conflict could reshape the world order, with Russia choosing territorial hegemony over global trade.

As Craig Fuller, chief executive of supply chain information services Freightwaves: If the international impact of the Russia-Ukraine conflict continues to spread, we face the real possibility of a two-pronged global economy, where geopolitical alliances, energy and food flow, currency systems and lanes trade can be split.

This may be outrageous. Nevertheless, the shock wave spread through the already damaged supply chain.

In this article, I will focus on three elements – energy, food and trade lanes.

Energy exports still flowing Concerns over Russia’s large disrupted fossil fuel exports have caused global oil and gas prices to soar.

Oil tanker transportation rates have tripled as shipowners weigh the risk of being stuck with cargo they can’t unload.

However, so far, there has been no significant disruption to Russian exports. The US and the UK (and Australia) ban all Russian oil imports, but this is not an important market (and the UK timeline to end imports is by the end of 2022).

More critical is what the European Union countries are doing, given their high dependence on Russian oil and gas.

So far, the EU has imposed financial sanctions on Russian energy producers while still buying their products.

Switching from Russian oil is not easy. Russia has a 12 percent global share, and global refineries are refined to work with certain types of oil found in certain regions.

If possible, reducing production to change the oil mixture takes weeks and requires a change in equipment. Cutting ties with Russian oil may not be an option in the short term.

Replacing Russian gas is more challenging. The European Union takes more than 40 percent of its gas imports from Russia.

Pipelines like the Nord Stream, which connects Russia to Germany, are unmatched. Sea transportation is limited. If the oil tanker is a large-sized tin can, the LNG carrier is a super cold cryogenic tank that maintains a liquid liquid at a temperature of minus 160 ℃ (-260 degrees Celsius).

There are several players in the game, with the amount of gas transported globally about 0.1 percent of oil.

Food supply in 2020, Russia and Ukraine, account for 25.6 percent of global wheat exports (Russia 17.6 percent, Ukraine 8 percent), 23.9 percent of global barley exports (Russia 12.1 percent, Ukraine 11.8 percent) and 14 percent of global corn exports (Ukraine 13.2 percent, Russia 1.1 percent).

With higher energy prices also pushing up food prices, the United Nations Food and Agriculture Organization has raised concerns about food security in Africa and the Middle East.

Ukrainian exports have all come to a halt. No one knows for sure how much of his harvest will be affected. Fertilizers, pesticides and fuels are limited.

Men are being called to join the fight. Farm supplies were diverted to the besieged city and the army. The remaining trade routes to the west were threatened.

Russia has temporarily banned grain exports to its former Soviet neighbor. With these self -imposed restrictions, its Ministry of Industry and Trade has also “recommended” to stop fertilizer exports.

Russia is the world’s largest producer of ammonium nitrate, accounting for about a third of global exports. This will affect other major grain exporters such as Brazil, which imports about 85 percent of its fertilizer, mainly from Russia.

The trade routes of 27 European Union countries, the United States and Canada have closed their airspace to Russian aircraft. Russia, in return, has closed its airspace to 36 countries. This has consequences for transportation costs.

Surrounding Russia, the largest country with 11 percent of its land area is no trivial matter if you fly from Asia to Europe. The cargo division of German airline Lufthansa estimates it will reduce its air transport capacity by about 10 percent. FedEx has added a war surcharge.

The war also had consequences for China’s new “Silk Road” to Europe, the world’s longest cargo railway, on which the country has spent US $ 900 billion. While China’s exports by rail are still small compared to shipments, they have increased.

Rail routes helped reduce pressure on Chinese ports during the outbreak. This pressure has rebuilt with the COVID outbreak and hard closures in port cities such as Tianjin, Shenzhen and Shanghai (the largest ports in the world).

The main route from China to Europe is via Russia and Belarus. There are alternative routes to Turkey via Azerbaijan, Georgia and Kazakhstan, but these are less established.

China can also, of course, continue to use container ships. But the critical geostrategic goal of its Belt and Road initiative is to secure safe trade routes from the U.S. navy. This may weaken China’s enthusiasm for a protracted conflict between Russia and NATO countries.

The Russian invasion is a tragedy for the people of Ukraine, a challenge to European democracy, and a strong obstacle to economic recovery. A long, likely conflict is likely to unfold before us. It is reshaping the global supply chain, but how long and how much, takes time to assess.


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