With the prospect of a Russian invasion of eastern Ukraine, the risk of a long-term, armed conflict increases, which can lead to serious repercussions for international trade, according to freight forwarder Flexport.

Spearheaded by the US, the West has reacted with new sanctions against Russia after the country’s acknowledgement of the two Ukrainian breakaway regions, Donetsk and Luhansk.

And the escalation may lead to shortage of gas, increasing commodity prices and disruptions of supply chains, estimates Flexport in an analysis made before the recent western sanctions announced Tuesday.

”A kinetic conflict in Ukraine, combined with likely sanctions against Russia by the international community, could cause both physical disturbances to supply chains as well as a reduced ability for international buyers to transact,” reads the Flexport analysis.

Source: Flexport

Disrupted supplies will undoubtedly lead to increased prices on important goods exported by Russia and Ukraine, forecasts Flexport.

”In turn there’s also likely to be increased commodity prices which could further exacerbate ongoing, global supply chain inflation.”

The four most important exported goods from Russia and Ukraine are oil, gas, wheat products and metals. Last year, oil alone made up 35 percent of Russian exports, while wheat products accounted for 25 percent of Ukraine’s exports in 2020.

”Wheat prices are reportedly close to their highest levels since 2013 after an initial run-up in fall 2021 when tensions began to rise and the prospects of an otherwise poor harvest emerged. That pulled total food prices 21.8 percent higher than a year earlier in the three months to Jan. 31 versus a year earlier,” writes Flexport.

More expensive bunker oil and insurance

For shipping, physical disruptions of the supply chains may result in more expensive bunker oil and raised insurance premiums, predicts Flexport.

”The carriage of air freight from Asia to Europe has already started to bypass the area of potential conflict. While the availability of bunker fuel might not be restricted directly, the elevated level of oil prices has reportedly had a knock-on effect for bunker fuel prices.”

On LinkedIn, container analyst Lars Jensen of Vespucci Maritime warns that western shippers and carriers ought to be aware of the latest US sanctions against Russia, which, for instance, affect five vessels, including two container ships, directly.

The two container vessels can still sail between Russian ports, but western shippers can end up in conflict with the US sanctions if they allow their cargo to be carried by the ships.

If it comes to further Russia-targeted sanctions, large parts of the Russian economy may be excluded from the international payment system Swift, according to Flexport.

Deputy Chairman of the Security Council of the Russian Federation Dmitry Medvedev criticizes Germany’s decision to halt the new gas pipeline Nord Steam 2 connecting the two countries. Medvedev predicts it will lead to increased gas prices for Europeans:

”Welcome to the brave new world where Europeans are very soon going to pay EUR 2,000 for 1,000 cubic meters of natural gas,” writes Medvedev on Twitter.

China, acting as Russia’s ally in the conflict with Ukraine and the West, accuses the US of stimulating the crisis.

English edit: Kristoffer Grønbæk

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