The Russia-Ukraine Situation Superseded COVID-19 Impacts to Become the Main Risk to Global Supply Chains Today, Says Moody’s
COVID-19 threw worldwide supply networks into disarray, producing shortages and increasing costs. Russia's invasion of Ukraine threatens to severely disrupt those delicate supply systems, just as the outbreak has subsided. Russia is a large producer of many commodities, including oil, natural gas, palladium, and wheat. Ukraine is an exporter of grain and neon. The crisis has raised doubts about the availability of a significant portion of these critical commodities.
According to Moody’s Analytics analyst Tim Uy, the most significant risk to global supply chains has changed from the pandemic to the Russia-Ukraine war conflict and the geopolitical and economic uncertainties it has caused. As per Moody’s, the Russia-Ukraine issue will further worsen the situation for corporations in numerous industries, particularly those that rely on energy supplies. Because Europe is reliant on Russia for natural gas, it will bear the brunt of increasing energy prices. Oil prices have risen dramatically worldwide, driving up gasoline costs and worsening the cost forecast for airlines and other industries such as construction.
Moody’s stated that the Russia-Ukraine issue will further worsen the situation for corporations in numerous industries, particularly those that rely on energy supplies. Because Europe is reliant on Russia for natural gas, it will bear the brunt of increasing energy prices. Oil prices have risen dramatically worldwide, rising gasoline costs, and raising the cost outlook for airlines and other businesses that rely on petroleum, such as plastics.
The Russia-Ukraine conflict may also add to the global computer chip scarcity, which began during Covid and is at the root of the recent increase in new and used automobile costs. According to Moody’s, Russia contributes 40% of the world's palladium, a vital mineral needed in semiconductor manufacturing.
Furthermore, according to Moody’s, Ukraine produces 70% of the world's neon, a gas required to produce computer chips. If the armed confrontation continues, the worldwide chip scarcity will worsen. During the 2014-2015 turmoil in Crimea, neon costs surged. Even though chipmakers have hoarded resources, Uy believes that stockpiles can only last so long. Expect the chip scarcity to worsen if a solution is not reached in the following months, according to Uy, who added that this would pose considerable threats to automakers, electronics businesses, phone makers, and other industries. The inflation picture will be complicated by combining high energy prices and increased strain on computer chip supplies. In January, consumer prices rose quickly in over 40 years. Many experts predicted that inflation would moderate dramatically later this year, but that forecast is now in jeopardy.
The impact of the invasion of Ukraine, the ongoing war, the sanctions, and future events on the US economy is highly unpredictable, according to Federal Reserve Chairman Jerome Powell, who spoke before Congress on Wednesday. Moody’s cautioned that beyond computer chips, the Russia-Ukraine issue can hike transportation expenses, which are the most energy-intensive of all businesses. While the world will be happy that the Omicron variety appears to have been defeated, a new challenge has emerged with no obvious finale.