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Russia’s war in Ukraine could disrupt world trade – winners and losers

First, the pandemic broke out. Then came the Russian war in Ukraine. These two consecutive global crises could lead to some permanent changes in supply chains and trade, experts warn.

The war in Ukraine, in particular, has prompted some countries to consider finding more credible trading partners, according to CNBC.

“If the coronavirus pandemic highlighted the need to shorten supply chains, the war in Ukraine demonstrates the importance of having credible trading partners,” said Peter Martin, head of research at commodity research firm Wood Mackenzie.

Energy prices soared this year as Russia’s attack on Ukraine destabilized markets and Western countries imposed sanctions on Moscow.

Earlier this week, the European Union agreed to impose an embargo on 90% of Russian oil imports by the end of this year. Moscow, for its part, had previously threatened to cut off supplies in retaliation for the sanctions. The EU move prompted a Russian official to say his country would find more customers – oil markets from China and India have already soared this year.

The European Union also supplies about 40% of its gas from Russia, with about 1/4 coming from Ukraine.

Critical grain exports, such as wheat, have also been affected.

Millions of tons of wheat from Ukraine, which is one of the largest exporters of wheat in the world, remain trapped in the country, unable to reach countries in need. This is due to the fact that Russian military forces have blocked sea routes in the Black Sea, where the ports of Ukraine are located.

Prior to the war, Ukrainian ports on the Black Sea served about 90 percent of the country’s grain exports, according to Andrius Tursa, a Central and Eastern European affairs consultant at consulting firm Teneo Intelligence.

Referring to the effects of the war and the pandemic, Peter Martin said: “They could lead to a permanent redistribution of world trade. The global economy is becoming more regional – shorter supply chains with ‘reliable’ partners.”

Formation of new commercial blocks

Martin explains that this does not mean the “end” of globalization, but that world trade could be reorganized into two or more “peripheral blocs.”

The first would include the European Union, the United States and its allies – who have imposed sanctions on Russia and are aiming to isolate the country, according to Martin. This bloc could also include the United Kingdom and Japan.

A second bloc may be that of countries seeking to balance on “two boats”, ie to maintain relations with both sides.

“There will be a bloc of countries like China and India that will maintain trade relations with both those who imposed the sanctions and Russia – they could get more energy and resources from Russia but at the same time they have to maintain good relations with the big economies of the first bloc that absorb a significant part of their exports “, explains Martin.

New trade routes

Martin also notes that “trade routes, both land and sea, as well as the volumes passing through these blocks will be affected.”

Since the start of the war, shipping companies have avoided the Black Sea, where Russian military activity has blocked merchant shipping. This development has caused congestion in other European ports as shipping companies have been forced to change their routes.

“Russia’s military activity in the Black Sea, its constant attacks on Ukrainian ports and the landmines around them make it impossible for merchant shipping to continue,” Andrius Tursa wrote in a May 25 note.

He stressed that there are no “easy ways” to unblock Ukrainian ports, adding that “various ways are being discussed to ‘liberate’ Ukrainian ports in the Black Sea, but none of them is easy or feasible.”

“Ukraine, for its part, is trying to develop alternative trade routes, by land and by river,” in order to ensure the export of food to other countries.

“Although the capacity of alternative routes is expected to increase gradually, they are likely to be more complex and costly than sea routes. And Russia’s missile strikes on Ukraine’s railway infrastructure could further complicate their operation.” ο Tursa.

Winners and losers

Any diversion of freight as a result of these changes in world trade will result in some economies benefiting, such as Southeast Asia, Latin America and Africa, Martin said.

“Exports will be diverted in search of new markets for goods and services, and logistics companies will have to create the infrastructure to serve the new trade flows,” he added.

According to him, “Russia will probably be the biggest loser as, although it may turn to other trading partners, it will be excluded from a large part of the world economy.”

Lockdowns in China, a global manufacturing hub, have also contributed to the disruption of the shipping industry and trade.

“What we expect to see in the near future is clearly less dependence on major East-West trade routes between China and Europe, as well as between China and the United States,” said Christian Roeloffs, the company’s founder and CEO. Container xChange container reservation space.

Trade routes there could change and some Southeast Asian countries could benefit, such as Vietnam, where many companies have already turned to produce their products.

On the other hand, junctions such as Singapore – from where ships usually pass to the US – may be damaged, Roeloffs added, explaining that Singapore could be bypassed as ships will go directly from emerging production hubs in Vietnam and Cambodia on the West Coast of the USA.

“Some companies have begun to produce their products closer to home in order to reduce delivery delays as a result of factory closures, labor shortages and other factors,” said Jason McMann, head of geopolitical risk analysis at Morning Consult.

They may also focus on maintaining larger stocks “as a cushion against future problems”, rather than shrinking their supply chains, he added.

Source: Capital

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