The conflict in Ukraine has served to upend the lives of millions, resulting in immeasurable loss and untold destruction across the nation, setting in motion a series of unprecedented sanctions against the Russian Federation, as the international community seeks to inhibit the nation’s global standing and economic stability, with a view to halting the invasion.
The National Institute of Economic and Social Research expects Russia’s GDP to fall by 1.5 percent in 2022 and 2.6 percent by 2023’s end – with inflation in the country set to surge above 20% as a result of heightened import charges, inflationary pressures, the ruble’s weakened value, and trade disruptions.
Western sanctions imposed against Russia include restricted access to the SWIFT international payment system, the freezing of Russian central bank assets and the targeting of wealthy business leaders from the region.
While these impact blows are being offset by increased oil and gas prices from the area and trade workarounds with third-party nations, the effects of the restrictions placed on Russia are certain to leave a longstanding negative impact on its economy moving forward.
In the case of the UK, a relatively low reliance on Russia’s natural resource wealth has somewhat shielded Britons from access issues and insurmountable supply shortfalls. Nevertheless, declines in oil and gas output from the North Sea in recent years has resulted in a growing need for energy sources from other countries.
UK Gas & Oil
The Office for Budget Responsibility reports that just 6% of the UK’s gas imports and 8% of its oil imports in 2019 were from Russia, with Norway and the US accounting for 64 percent and 69%, respectively. Nevertheless, Russia remains a key energy producer across global markets, facilitating 17 percent of gas and 12 percent of global oil production in 2019, directly affecting the price at which the UK purchases its domestic and foreign supplies of oil. Notably, these prices have increased significantly since the Russian invasion and subsequent sanctioning.
An inevitable consequence of the rising fuel costs and lower real incomes from high inflation is a cost for both businesses and consumers. Drastic changes in oil availability and costs could well lead to ongoing delivery disruptions and sharp price increases across all sectors.
Cooking oil, bread & milk
To compound matters, both Ukraine and Russia are major agricultural exporters, supplying vast quantities of grains and wheat and accounting for 80% of the world’s supply of sunflower oil. Disturbances in the availability of their agricultural exports would rapidly affect food prices and disrupt the availability of essentials like bread and milk.
Further, both nations are important suppliers of commodities such as palladium, titanium and nickel, which are essential materials across a huge number of sectors – including smartphone technology, aerospace and automotive engineering.
In response to the ongoing crises, major shipping firms have dealt a major blow to the Russian economy, with Maersk and MSC Mediterranean Shipping Company halting journeys to and from the nation’s ports – save for the delivery of food, medical supplies and humanitarian products. The move also presents a significant financial and logistical roadblock for businesses supplying goods to and from Russia, affecting demand through price surges and further damaging international markets.
The ongoing uncertainty surrounding the Russia-Ukraine conflict leaves many questions for business globally. Whether supplies are cut and energy rationing is implemented across the UK and Europe, or whether alternative LNG imports can be sought to offset potential cut-offs on the part of Russia, safeguarding the supply of materials and resources will be essential to mitigate the challenges of high inflation, surging energy costs and a potentially austere long-term financial landscape.
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