As sanctions on Russia increase, they are having a devastating effect on global trade. The sanctions will affect energy and grain importers, as well as cause supply chain disruptions around the world.
Russian forces have diverted hundreds of tankers and bulk carriers away from the Black Sea, and dozens more have been stranded due to their inability to unload their crucial cargoes. Grain exports from Russia are among the highest in the world, and the country is a major supplier of crude oil, metals, wood, and plastics.
Western powers have sanctioned only a few of Russia’s 2,000 cargo and tanker ships, but the freezing of assets at the country’s biggest banks means imports and exports will be significantly impacted. AP news report businesses such as Apple and Nike, as well as major shippers such as Maersk, have abandoned the country, whose extensive trade ties with the West have all but evaporated.
“This is an earthquake like we’ve never seen before,” commented Ami Daniel, a company co-founded by Windward that advises governments on maritime intelligence.
He continued, “Companies are going well beyond what’s legally required and taking actions based on their own values before their customers even demand it.”
China, whose growing economy is thirsty for natural resources, could be an escape valve for Russian exports. While China has been one of the largest beneficiaries of globalization, it has shown little interest in supporting President Vladimir Putin despite abstaining from a U.N. vote condemning the land grab.
There are already tensions at Interunity Group, a family-run Greek shipping company with more than 60 oil tankers and bulk carriers operated by dozens of Russians and Ukrainians.
The Russian employees of Interunity wondered how they’d get home after a flight ban was imposed on their country by the European Union following the invasion. The Ukrainian side didn’t know where they would return to after the war.
In one instance, a Ukrainian captain stranded on a tanker in the Gulf of Mexico was in such distress that he demanded to disembark months before the end of his contract, said George Mangos, the director of Interunity.
“He told me he wanted to get off at the next port so he could fight for his homeland,” said Mangos.
“Operating a highly sophisticated tanker with a dangerous cargo is stressful even under normal situations, so all you can do is ask people to focus on the job and leave the politics aside. It’s hard, but these are very stoic people, and I’ve been impressed by their dedication.”
As of now, the war has most severely affected global trade in the Black Sea, where Russian and Ukrainian ports serve as major hubs for wheat and corn. As a result, the world’s second-largest grain exporting region has effectively been shut down.
Although increasing oil production elsewhere can be fast tracked, increasing grain production takes time, and the sheer amount of grain that could be diverted as a result of conflict and sanctions could wreak havoc on poorer countries that depend on imports.
“The question is not whether there will be serious economic effects and critical food shortages in already fragile countries, the question is what Russia will do with that and how the West will react,” said Rohini Ralby, a director at I.R. Consilium.
Egypt, India, and Turkey are among the countries most at risk since they all heavily rely on Russia for everything from flatbread ingredients to natural gas and tourism.
Russia provides approximately 78% of Turkey’s wheat imports, while Ukraine provides 9%. Turkey’s food industry is one of the biggest exporters of those supplies. Most of India’s oil comes from Russia, and metals are imported from Russia for the fifth-largest automobile industry in the world.
U.S. consumers will feel the greatest impact at the pump, where higher prices will add to inflation already at the highest rate in four decades. The U.S. imported 8% of all oil products from Russia last year, making it the third-largest supplier of oil products after Mexico and Canada. The United States also imports Russia’s platinum, a metal used to make automobile exhausts.
In general, Russia ranked 20th among the United States’ top 20 suppliers of goods.
In an attempt to limit the pain on the West, the Biden administration has held back from imposing a blanket trade embargo or targeting Russia’s energy sector; however, this would have done little to calm markets.
Since the week before the invasion, wheat prices have risen more than 55%. For the first time since 2013, oil prices rose above $110 a barrel after steadily rising since the start of the year due to a recovering global economy.
In addition, the cost of chartering giant oil tankers worldwide has increased by 400% as oil traders scramble for capacity that is suddenly scarce. It is estimated that 87 million barrels of Russian oil worth $10 billion are floating in the ocean and searching for a buyer.
The effects of economic warfare on Russia are still a mystery, as are the consequences of unintended consequences. While over-compliance with sanctions is a frequent problem, restrictions have never before been implemented with such swiftness and coordination across U.S. allies to target a global power.
Johns Hopkins University professor Tinglong Dai, who studies supply chains, is alarmed by the situation. For Dai, the economy and geopolitics have always been separated, and rational decision-making has always prevailed.
“Both of those have been destroyed by Russia,” Dai asserts, adding that a new “Iron Curtain” could soon emerge, featuring Russia and its allies along one side and the West along with the other.
“It’s no longer possible to avoid picking sides, and the consequences of this reconfiguration of global supply chains in terms of more poverty, loss of innovation, and job opportunities is something we will all have to pay for,” he added.
