Russian Invasion of Ukraine Has Far-Reaching Supply Chain Consequences

The current global economic order is founded on credit and globalization, and Russia’s miscalculation in starting a war with Ukraine is having ripple effects in distant continents. Vital food supply chains for faraway nations have been disrupted, with destabilizing consequences. Protests are back in the Sudanese cities of Atbara, Nyala and Damazin, driven by sharp rises in the cost of bread and fuel. Local media reports indicate that in the last week, bread prices increased by more than 40 percent. On average, Sudan spends $500 million annually on imported wheat, with roughly half the total purchased from Russia. Lebanon is also on the brink of a catastrophic food crisis. Most of its wheat imports come from Ukraine. Unfortunately, economic hyperinflation and severely limited storage is exacerbating Lebanon’s condition. “Lebanon used to be able to store four months’ worth of wheat reserves, but the August 2020 Beirut Port explosion destroyed the country’s primary grain storage silos, removing 120,000 tonnes of storage capacity that has yet to be restored to this day. Lebanon’s other major port in Tripoli has no grain storage capacity, leaving the country to fend with only one month’s storage by using warehouses owned by 12 mills,” reported Prof. Michael Tanchum, a MENA Affairs researcher, in the UAE-based newspaper The National. If Lebanon secures wheat consignments from other major wheat suppliers, longer ocean routes mean that the replenishment would be late. Meanwhile, apprehension in the global metals market is yet to subside. Essential shipments of metals are still stuck in Ukraine and Russia. As an example of the impact, Tesla has announced that it is raising prices for the second time in less than a week. According to Tesla CEO Elon Musk, the company has faced inflationary pressure as price for raw materials and shipping costs are increasing. Prices of metals used in cars have soared, including aluminum used for bodywork, palladium used in catalytic converters, and nickel and lithium used in car batteries. Tesla depends on the Russian aluminum giant Rusal for millions of dollars’ worth of metal. In addition, the extraordinary volatility in global fuel prices is leading ocean carriers to boost their bunker surcharges. MSC announced this week that it will increase the frequency of updates to its bunker fuel charges to every two weeks instead of the monthly and quarterly adjustments it has used historically.