In a statement published on Saturday 26 February, European Commission President Ursula Von Der Leyen confirmed that Europe and its allies were “determined to continue imposing huge costs on Russia” and that disconnecting Russian banks from SWIFT would also halt Russian trade. All of these actions are aimed at stopping the war from an economic standpoint, but to date they have not succeeded in stopping the fighting.
On Tuesday, shipping giant Maersk announced it would temporarily suspend all shipments to and from Russia by sea, air and rail, with the exception of food and medicine. On the other hand, trade flows between Russia and its trading partners can be done directly, but the reality is that payments often have to go through a Western-dominated financial system and usually have to go through a Western currency.
However, the conflict situation is putting global stocks of products such as platinum, aluminium, sunflower oil and steel at risk, and causing factory closures in Europe, Ukraine and Russia.
The conflict in Ukraine, a large country at the crossroads of Europe and Asia, has led to the cancellation or diversion of some flights, putting pressure on cargo capacity and raising concerns about future disruptions to supply chains. Ukraine and Russia are also key partners, exporting palladium and platinum, which are used in catalytic converters, as well as aluminium, steel and chromium.
Volkswagen officials say parts shortages will force them to cut production at their main factory in Wolfsburg and several other German plants, while BMW said it would cut output at its plants in Germany, Austria and the UK. This would lead to higher car prices and higher costs for the entire auto industry.
As Ukraine's air zone, which connects Europe to Asia, is affected by the fighting, this is likely to lead to longer journeys and cause delays in industries. Air transport is essential, as it helps with the shipment of electronics, semiconductors and fast fashion, for example.
Russia also accounts for about a fifth of global natural gas trade, and both Russia and Ukraine are major exporters of wheat, barley, corn and fertilizer. If the conflict drags on, it could jeopardize the summer wheat harvest, which is used to make bread, pasta and packaged foods that are distributed to huge numbers of people, especially to markets in Europe, North Africa and the Middle East.
Russian airspace is an alternative for trade development, but cargo will take longer and use more fuel, so a larger budget may be required and smaller, lighter cargo may be preferred.
Last month, Western governments decided to exclude certain Russian banks from using the SWIFT interbank messaging system, limit the Russian central bank's ability to prop up the ruble, suspend shipments of high-tech products and freeze the global assets of Russian oligarchs.
Isolating the banks will prevent them from carrying out most of their financial transactions around the world and will block Russian exports and imports, which would help reduce Russia's war budget, and was a necessary measure. Moreover, the economic implications of the war and the harsh sanctions on Russia are still unclear, with many industries preparing for the current precarious situation to worsen. However, it was said that a shortage of materials such as palladium and xenon, used in the production of semiconductors and cars, could worsen the current difficulties of those industries.
Caroline Bain, an economist and head of commodities at Capitol Economics, said financial sanctions would halt trade in metals and agricultural products, likely exacerbating tensions in global supply chains. Flights between New Delhi and London, for example, were about 8 percent longer on average between Wednesday and Sunday than similar flights three months earlier, data from Flightradar24, an aviation tracking firm, showed. The semiconductor shortage has halted production at auto plants and other factories, driving up prices and hurting sales.
These problems have been brewing for more than two years of pandemic-related disruptions, creating delays and high prices for struggling companies that use global supply chains to move their products around the world. Russia’s invasion of Ukraine has thrown global supply chains into disarray from the pandemic, exacerbating rising costs, delayed deliveries and other problems for companies trying to transport goods around the world. For example, producers of potato chips and cosmetics could experience shortages of sunflower oil, since most of it is produced in Russia and Ukraine.
Semiconductor manufacturers are also carefully monitoring global stocks of neon, xenon and palladium, which are needed to manufacture their products. The effects are said to vary for particular industries and depend on the duration of the invasion, but the impacts will be magnified because supply chains are already vulnerable.
According to experts such as Eswar Presad, a professor of trade policy at Cornell University, cargo shippers are clever. However, the impact of financial restrictions on trade is likely to be even greater, blocking Russian imports and exports to almost all of its major trading partners.
Now, there is room for diplomatic action and, within the European Union, decisions will be taken unanimously and that will make this bloc stronger, and peace will be achieved again between nations. Trade sanctions will be measures adopted to avoid greater evils; however, that does not rule out the possibility that the war position of the sanctioned country could also worsen.
Many legal experts say that international law has been attacked by the Russian invasion, as the national sovereignty and territorial integrity of one nation (Ukraine) has been violated. The conflicting nations and mediators must seek a path to peace and avoid the consequences that this war has already brought and will bring.
Mayron W. Ponce de Leon Sierra is a data analyst at the Ministry of Foreign Trade and Tourism of Peru. Professor at the Private University of the North.
PhD | Dr. (c) in Global Business Administration, MBA with a focus on strategic management and Master's in Public Management; University Professor and thesis advisor at the Universidad Privada del Norte (UPN); Partner and Commercial Manager of the Marketing Consulting Firm Peru; expert in trade fairs and missions, business roundtables, professional registered and authorized by the Regional College of Graduates in Administration of Lima, consultant on export issues, market research, business plans; Scrum Master with extensive experience as Key Account Manager and Project Manager.
The undersigned has served as Head of Market Research at the Centre for Business Studies (CEE).
