Jakarta, CNBC Indonesia – Tensions between Russia and Ukraine involving the United States (US), Europe and NATO are currently not only believed to trigger World War 3 (World War III). But it can also have a number of other economic consequences.
Oil and gas prices have skyrocketed because of this crisis. But the impact on the sector will not be the only one, as the crisis will affect the supply chain.
Analysts say supply chains such as wheat to barley and copper to nickel will be disrupted. This will create a new ‘apocalypse’ where scarcity occurs especially in European countries.
Food Scarcity
“Ukraine is seen as Europe’s bread basket and an invasion (of Russia) would result in the food supply chain being hit hard,” said Alan Holland, CEO and founder at Keelvar. CNBC International, Wednesday (23/2/2022).
Ukraine produces the wheat, barley and rye that many of Europe rely on. The country is also a large corn producer.
Prices of wheat and corn have soared. Chicago-traded wheat futures have gained about 12% since the start of the year, while corn futures have jumped 14.5% in the same period.
“Although harvest season is still months away, a prolonged conflict will create a bread shortage (and increase consumer prices) this fall,” Holland said.
In fact, it’s not just Europe that will be affected. Many countries in the Middle East and Africa also depend on Ukrainian wheat and corn.
This also includes China. This disruption to supply could affect food security in the region.
“China is also a big recipient of Ukrainian corn. In fact, Ukraine will replace the US as China’s main corn supplier in 2021,” said Dawn Tiura, President of Industry Sourcing Group.
Per Hong, senior partner at consulting firm Kearney, points out that Russia is also the world’s top wheat exporter. Together with Ukraine, they account for about 29% of the global wheat export market.
Meanwhile, it is no secret that Russia is the world’s leading exporter of natural gas. Any disruption to the supply of natural gas will in turn affect the production of energy-intensive products such as fertilizers, which also affects food production.
Fertilizer was in short supply last year, due to the lack of energy sources. This also causes prices to soar.
Disrupt the Industrial Supply Chain
Ukraine is also a major provider of raw materials, chemical products and even machinery such as transport equipment. The country is also a major supplier of minerals and other commodities.
Russia also controls about 10% of global copper reserves. The White Bear is a major producer of nickel and platinum.
The scarcity caused by the crisis will disturb a number of countries. Germany, for example, is believed to be hardest hit by the Russia-Ukraine crisis.
Germany derives most of its energy needs for manufacturing and electricity from natural gas from Russia. Germany is a top exporter of manufactures including cars and auto parts, other transport equipment, electronics, metals and plastics.
(tfa)
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