War in Europe. In this blog, we focus on the pressure that the Ukraine-Russia crisis will exert on already fragile supply chains and financial markets emerging from post-COVID aftereffects. Initial reactions to the Russian invasion underscore the interconnection of global economies. Impacts include:
Sanctions: Economic sanctions on Russia targeting 80% of all banking assets will have a significant impact on global supply chains. According to the WSJ:
- The US blacklisted Russia’s first- and second-largest financial institutions, Sberbank and VTB, and added numerous other financial institutions to sanctions lists. Two days previously, US-based assets of state-owned banks Vneshekonombank and Promsvyazbank, along with their subsidiaries were frozen.
- The Biden administration has barred US firms and individuals from dealing in Russian sovereign debt. This cuts off a key source of funding for Kremlin objectives.
- European Union sanctions will cut 70% of Russia’s banking system off from international financial markets.
- In the United Kingdom, the government plans sanctions on more than 100 Russian entities. It will pass legislation to bar the Russian government and major state-linked companies from issuing debt in the UK.
- Additionally, the US, along with France, Germany, Italy, the UK, and Canada, announced that they would expel certain Russian banks from SWIFT, the high-security network that connects thousands of financial institutions around the world. (Source: CNN)
Stock markets: The value of the region, as along with the urgency of the unfolding crisis, is reflected in the stock market’s reaction to the February 24 invasion of Ukraine. Wall Street plunged that day, with the Dow Jones Industrial Average falling by more than 800 points.
Oil prices: Moreover, with oil production by the OPEC nations lagging well behind global demand, both Brent and US oil topped $100 for the first time since 2014. As the crisis continues, this could get much higher. (Source: CNBC) The price of aluminum has risen by more than 20% this year so far, and palladium is up 26.7%. Similarly, wheat futures traded in Chicago jumped 12% to their highest level since 2012. (Source: WSJ)
So, what are implications and further possible impacts for supply chains? Here are some facts on the economies and exports of the two countries.