preface
On February 24, 2022, Beijing time, Russia launched a full-scale armed aggression against Ukraine, and global energy and food prices rose sharply. Known as the "granary of Europe", Ukraine is also the world's second largest exporter of crude oil and the third largest exporter of natural gas. If the war continues, it will undoubtedly cause great harm to global energy and food security. At the same time, Russia and Ukraine also play a key role in the world chip production supply chain, Russia and Ukraine are the main suppliers of neon and metal palladium necessary for the production of semiconductor chips, and 90% of the neon gas used in semiconductor production in the United States depends on Ukrainian imports.
This article sorts out the impact of the war between Russia and Ukraine on the world supply chain from the main products that are closely related to the exports of Russia and Ukraine: grain, energy, chips, etc.
Data summary
- Russia and Ukraine play a central role in the export of key world trade products: energy, food, chip raw materials.
- In 2020, the total foreign trade exports of Russia and Ukraine accounted for 1.9% and 0.3% of the world's total exports, respectively, ranking 16 and 48th in the world.
- Russia is the world's second largest exporter of crude oil, and the third largest exporter of natural gas, the largest supplier of natural gas to the European Union.
- Russia and Ukraine are the world's major exporters of iron ore, nickel ore and other ores, as well as major exporters of agricultural products including barley, wheat and corn, accounting for 29% of global wheat exports. Since 2021, Ukraine has replaced the United States as the largest supplier of corn to China.
- Russia and Ukraine have a monopoly on two key raw materials for global chip production: exports of neon gas and palladium metal.
Europe may face energy shortages
Russia is the world's second-largest exporter of crude oil, and the third-largest exporter of natural gas, with 80% of its natural gas exported to the European Union and its largest energy supplier, accounting for 40% of the total. Although Russia and the European Union are fiercely regarded in the war, oil and gas transportation between the two sides remains smooth. Because Russia's energy supply is indispensable to the EU, although the United States and Saudi Arabia can transport oil by sea, but the price is expensive, if the EU stops its contract with Russia, other countries want to fill the gap in a short period of time. Of course, for Russia itself, it is not willing to stop the supply to the EU, because Russia's domestic industrial chain is weak, and this part of the export is the main source of Russia's economy.
The one that affects them the most is Germany. The recent upturn in relations between Germany and Russia is largely due to a $12 billion cooperation agreement for the Nord Stream 2 oil and gas pipeline. Immediately after the russo-Ukrainian war began, Germany stopped the Nord Stream 2 project. Of course, this also comes at a cost to Germany, because voluntarily abandoning cheap energy will definitely increase its own energy costs and cause energy shortages.
At the same time, the war will trigger the world's safe haven and oil hoarding, so the rise in oil prices is inevitable, the international crude oil futures price has soared all the way to nearly $100 since the war began, it is now the highest point in 14 years, and the price of natural gas in Europe has also soared by 52%.
The picture shows the international crude oil futures prices in the past year. Sources https://tradingeconomics.com/
Of course, Russia, as a major energy exporter, will also benefit from rising oil prices, but war requires manpower and material resources and consumes a lot of money. According to British media estimates, Russia consumes about 15 billion pounds of production per day to fight wars, which can also understand why Russia's first day of entry into Ukraine was the blitzkrieg and decapitation operations. Although the current sanctions programs for Russia do not target energy, if the sanctions are further expanded later, the EU's energy shortages and international energy price increases will certainly increase.
Global chip shortages are intensifying
Russia and Ukraine as the main source of the key raw materials "neon gas" and the metal "palladium" for the production of semiconductor chips, the continuation of the Russo-Ukrainian war will undoubtedly exacerbate the already stretched global semiconductor chip production, and adversely affect the downstream supply chain of automobiles, machinery and electronic products.
Neon gas is an inert gas, is an indispensable process gas in the semiconductor manufacturing process, 90% of the world's neon gas is produced in Russia, of which 60% is further processed and purified in Ukraine and then exported. 90 percent of the neon gas used in the U.S. for the lithography process for chip production depends on Ukrainian exports. It is reported that during the Russian-Ukrainian Crimean War in 2014, the price of neon gas soared by 600%.
Metal palladium and its alloys are widely used in almost all electronic components due to their electrical conductivity and durability. Russia supplies 37% of the world's palladium. Palladium prices have risen 6 percent over the past week.
Taiwan's semiconductor giant TSMC told the media on February 26 that the company's current chip production will not be greatly affected, first, Taiwan's local companies also have the ability to produce metal palladium. Second, the company has stockpiled a sufficient amount of neon gas and is seeking to diversify its supply chain to ensure stable production. Third, Taiwan Province's natural gas does not rely on Russian imports, and the province also has 145 days of crude oil reserves.
While the International Semiconductor Association (SIA) is also optimistic about short-term production: "The semiconductor industry has a variety of core material configurations to choose from, and we do not believe that the Russian-Ukrainian conflict will pose a threat to the current supply chain of the semiconductor industry." But the current median international semiconductor inventory has dropped from 40 days in 2019 to 5 days in 2022, and if the war continues, the long-term impact is unclear.
Global food security is at stake
In addition to the impact on the security of energy and chip production, the biggest concern is the threat that the war between the two countries poses to food security in Europe and the world. Ukraine has been known as the "granary of Europe" since ancient times, and European countries can be said to be inseparable from Russia and Ukraine in terms of food supply. Together, Ukraine and Russia account for 29 percent of the world's wheat exports, and according to the World Trade Center website, Ukraine also exports nearly half of the world's sunflower oil, and Russia exports 13 percent of the world's fertilizers. 16% of the world's cereal exports (including wheat, barley, corn and other food categories) come from Russia and Ukraine. Since 2021, Ukraine has replaced the United States as China's largest corn supplier.
Pictured here are the main agricultural exports of Russia and Ukraine (Source: VOX News). Note: The above figure shows the production of Sunflower Seed Oil from Russia and Ukraine.
Steve Taravella, a senior spokeswoman for the United Nations Food Programme (WFP), said: "Hunger rates are rising significantly around the world, and one of the main reasons is man-made disputes".
Although since 2011, due to the frequent occurrence of bad weather such as drought and heavy rains and the impact of the epidemic, world food prices have risen all the way, threatening the food security of some 86 million people worldwide. The war between Russia and Ukraine, as the world's food export powers, and the sanctions imposed on Russian exports by various countries will undoubtedly exacerbate the problem.
As the chart below shows, the price of wheat and corn on the Chicago Exchange has broken through new highs since the beginning of the war.
In addition, in addition to Europe, for some small and middle-income countries that rely heavily on imports for food, unfavorable factors such as rising prices and unstable exports will undoubtedly make their already fragile food security more fragile. 95% of Ukrainian wheat is exported to Asia and Africa, and more than 50% of the food imports of Yemen, Libya, Egypt, Indonesia and other countries come from Ukraine and Russia. According to the United Nations Food Programme, nearly half of Yemen's population of about 15 million people lack adequate food supplies, and 30% of children under the age of five are chronically malnourished.
With 2-3 weeks to go, Ukrainian farmers will be spring planting, and the Russian invasion could completely disrupt The Farming Plans of Ukrainian Farmers, and even the refueling of agricultural machinery may be difficult. Although there are still months to go before the harvest, the impact of the war on world food security may not be as easy as whether Europeans can eat bread.
Central European rail freight transport was affected
Global logistics and transport systems have been severely affected by the pandemic, and today's Russo-Ukrainian war will further stagnate maritime and land rail transport, including China.
With the development of the Belt and Road, since 2011, China and Europe have frequent rail transport exchanges, and more than 50,000 trains have been operated to supply the trade needs of countries along the route, and the important city of Ukraine, Odyssey, is also one of the largest nodes of this route. Now that the war is going on, coupled with the sanctions imposed on Russia by many countries, rail transit can only be wound, causing serious impact on rail freight in some countries, such as Lithuania, and may even cause a humanitarian crisis. At the same time, rising postwar oil prices will also make transporters rethink costs and increase trade difficulties.