Russia’s war against Ukraine could shake up global trading blocs. These are the winners and losers


Aerial view of shipping containers and cranes at the port of Qingdao on May 30, 2022 in Qingdao, China’s Shandong province.

Han Jiajun | Visual China Group | Getty Images

First, it was the pandemic. Then came the war between Russia and Ukraine. With two major global crises in a row, there could be some lasting changes in supply chains and trade, experts warn.

The war in Ukraine, in particular, has made countries reflect on the need for more reliable trading partners.

“If the Covid-19 pandemic revealed the need to shorten supply chains, the war in Ukraine underscores the importance of reliable trading partners,” said Peter Martin, research director at commodities research firm Wood Mackenzie.

Energy prices rose this year as the Russian attack on Ukraine destabilized markets and Western countries imposed sanctions on Moscow.

This week, the European Union agreed to ban 90% of Russia’s oil imports by the end of this year. Moscow also previously threatened to cut supplies in retaliation. That has led a Russian official to say the country will find other importers — oil purchases from China and India have already skyrocketed this year.

The European Union receives about 40% of its natural gas from Russian pipelines and about a quarter of it flows through Ukraine.

Crucial grain exports, such as wheat, have been affected.

Millions of tons of wheat from Ukraine, one of the world’s largest wheat exporters, are trapped in the country and unable to reach the countries that need them. That’s because Russian forces have blocked the Black Sea, where Ukraine’s main ports are.

According to Andrius Tursa, adviser for Central and Eastern Europe at the consultancy firm Teneo Intelligence, Ukraine’s Black Sea ports accounted for about 90% of grain exports before the war.

Referring to both the war and the pandemic, Martin added, “These forces could lead to a lasting realignment of global trade. The global economy is becoming more regionalized – shorter supply chains with ‘reliable’ partners.”

1. Trading Blocks

Martin said it is “not the end” of globalization, but that world trade could reorganize into two or more “different blocs”.

The first bloc would be made up of the European Union, the US and its allies — which, Martin says, have imposed sanctions on Russia and are aligned in isolating Russia. Those allies could be the UK and Japan.

Another group could be countries trying to cover both sides.

“There will be a bloc of countries like China and India that will maintain trade with both the sanctioned allies and Russia – they could take more energy and resources from Russia, but have to maintain good relations with the major economies in the first bloc , which account for a significant portion of their export demand,” says Martin.

2. Trade routes

“Land and sea trade routes and the volumes passing along them will be affected,” Martin also said.

Since the beginning of the war, shippers have avoided the Black Sea, where Russia’s military activity has blocked commercial shipping. This caused congestion in other ports in Europe as shippers had to change their routes.

Russia will likely be the biggest loser because, while it may change some trade relations, it will be excluded from much of the global economy.

Peter Martin

research director, Wood Mackenzie

“Russia’s military activity in the Black Sea, constant attacks on Ukrainian ports and heavy mining in the waters around the ports make commercial shipping impossible,” Tursa wrote in a May 25 note.

There are “no easy ways” to unblock Ukraine’s ports, he said, adding that “several proposals to unblock access to the Black Sea in Ukraine are under discussion, but none are easy or likely.”

Ukraine is now trying to develop alternative land and river routes to export food products to other countries.

“While the capacity of alternative routes is expected to increase gradually, such exports are likely to be more complex and expensive compared to the sea route. Russia’s missile strikes on railway infrastructure across Ukraine could further complicate logistics,” Tursa said.

Winners and losers

Any diversion due to changes in global trade would benefit some economies, such as Southeast Asia, Latin America and Africa, according to Martin.

“Russia will probably be the biggest loser because while it may change some trade relations, it will be excluded from much of the global economy,” Martin said.

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The lockdowns in China, the world’s manufacturing center, have also contributed to the turmoil in the shipping and trade industries.

“What we expect to see in the near future is clearly a lower reliance on the major east-west trade routes between China and Europe, as well as China and the US. Those are typically the stretches where you have megaships that do anything between two and two five stops. in China,” said Christian Roeloffs, founder and CEO of container booking company Container xChange.

Routes may change and could benefit some Southeast Asian countries, such as Vietnam, where more companies are already manufacturing their goods.

On the other hand, places like Singapore — where ships often pass en route to the US — could be wrong, he added, explaining that Singapore may be bypassed as shippers from the emerging manufacturing hubs of Vietnam and Cambodia directly to the US. go west coast.

“Some companies are starting to produce closer to home to mitigate delivery delays due to plant closures, reduced workforces and other factors,” said Jason McMann, head of geopolitical risk analysis at Morning Consult.

They could also shift to holding larger inventories “as a buffer against future disruptions,” rather than having shorter supply chains, he added.

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