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Ukraine-Russia conflict: How is it affecting world foreign trade?
04th Apr 2022

Ukraine-Russia conflict: How is it affecting world foreign trade?

As the Ukraine-Russia conflict aroused concerns about the potential impact on certain sections of the freight train and shipping routes by sea and air, traders and logistics service providers have increased their efforts to deal with the quickly developing situation in Europe. Ukraine and Russia may only account for a small part of major manufacturing nations' imports, such as Germany and the United States. Still, they are vital raw material and energy suppliers for many supply chains.

While the exact impact is unknown due to the rapid pace of events, some foreign traders have cancelled or diverted some trading channels and routes to avoid potential delays.

According to economists, the Russian invasion of Ukraine is expected to hamper global trade further, sending gas prices skyrocketing and stock markets into a correction zone. The conflict in Ukraine is threatening to destabilise already strained supply networks. Ukraine and Russia may only account for a small part of major manufacturing nations' imports, such as Germany and the United States. Still, they are vital raw material and energy suppliers for many critical supply chains.

Impact on Agricultural Trade

The Ukraine-Russia conflict has had an impact on foreign markets. In retribution for Moscow's military assault on its western neighbour, the Biden administration has promised to "aggressively enforce" harsh sanctions. An invasion of Ukraine, termed "the breadbasket of Europe" because it is a significant supplier of wheat, barley, corn, and rye used mostly in Europe, might further disrupt supply networks. This could impact Middle Eastern and African countries that import Ukrainian wheat and grain. Ukraine is one of the major corn suppliers of China.

Global wheat and corn prices have been soaring since the beginning of the year, even before the invasion. Since 2021, wheat futures have increased by 12%, while corn futures have increased by 14.5 per cent. Ukraine's farms provide food to millions of people all over the globe. In addition, financial markets are in an unstable position as central banks prepare to reverse years of cheap money policies and hike interest rates to combat inflation. In fact, higher interest rates are expected to restrict consumption and escalate the danger of another recession.

Other Commodities

Metals and other commodities are also key exports for both Russia and Ukraine. Webull CEO Anthony Denier told The Post, "Russia is a huge exporter of oil, natural gas, and palladium." Russia is a major oil and natural gas exporter, with a focus on the European market. Americans who are already feeling the pain at the gas pump are likely to cut back on other purchases. Experts have warned that a large-scale Russian invasion of Ukraine may push gas costs in certain areas over $7 per gallon.

If the US moves ahead with the "nuclear option" of cutting Russia out of the SWIFT payment network, which is a messaging service that connects thousands of banks and allows them to send payments around the globe, then financial markets might become even more chaotic.

Such a measure would isolate Russia and prevent the transfer of earnings from the country's energy sector, which accounts for more than 40% of its revenue. In fact, shutting Russia out of international banking might backfire, damaging the US and European businesses that do business with Russia.

Cyber Attacks: Another cause of concern

Cyber attacks on global supply lines have also been a source of concern. Since trade relies heavily on internet information exchange, targeting vital shipping lines or infrastructure might have far-reaching implications. A supply chain cyber assault can have massive ramifications.

Sea transportation has been disrupted as a result of the conflict, with foreign shipping companies switching routes due to mounting safety concerns. Industry analysts say the regional conflict's overall impact on freight trains is manageable despite the disruption, owing to the tiny number of these trains passing through Ukraine.

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