Winners and losers as the Russian-Ukrainian war disrupts global trading blocs

An aerial view of shipping containers and cranes at Qingdao Port on May 30, 2022 in Qingdao, Shandong Province, China.

Han Jijun | China Optical Group | Getty Images

First, it was the epidemic. Then came the Russo-Ukrainian war. With two major global crises in a row, there may be some lasting changes in supply chains and trade, experts warn.

The war in Ukraine, in particular, has prompted countries to consider the need for more reliable trading partners.

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

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

This week, the European Union Agreed to ban 90% of Russian oil imports By the end of this year. Moscow has also previously threatened to cut off supplies in response. This prompted a Russian official to say The country will find other importers Oil purchases from China and India have actually risen this year.

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

Exports of primary grains, such as wheat, were affected.

Millions of tons of wheat from Ukraine, one of the world’s largest wheat exporters, are stuck in the country, unable to reach the countries that need it. That’s because Russian military forces were closing off the Black Sea, where the main Ukrainian ports are located.

Before the war, Ukraine’s Black Sea ports accounted for about 90% of grain exports, according to Andrios Torsa, a Central and Eastern Europe consultant at consultancy Teneo Intelligence.

Referring to war and pandemic, Martin added: “These forces could lead to a permanent reorganization of global trade. The global economy becomes more regional – shorter supply chains with ‘reliable’ partners.”

1. Trade conglomerates

Martin said this is “not the end” of globalization, but that global trade could reorganize it into two or more “distinct blocks.”

The first bloc will consist of the European Union, the United States and their allies — who have imposed sanctions on Russia, and are allied in isolating Russia, according to Martin. These allies could include the United Kingdom and Japan.

Another group may be countries that will seek to ride both sides.

“There will be a group of countries like China and India that maintain trade with both sanctioning allies and Russia – they can take more energy and resources from Russia but they need to maintain good relations with the large economies in the first bloc that account for a large proportion of export demand” Martin said.

2. Trade routes

“Both land and sea trade routes will be affected by the volumes that pass along them,” Martin said.

Since the war began, shippers have avoided the Black Sea, where Russian military activity has prevented commercial shipping. This caused congestion at other ports in Europe because shippers had to change routes.

The biggest loser is likely to be Russia, which, although able to strengthen some trade links, would also become excluded from a large proportion of the global economy.

Peter Martin

Research Director, Wood Mackenzie

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

He said there are no “easy ways” to unblock Ukrainian ports, adding that “various proposals to unblock Ukraine’s access to the Black Sea are being discussed, but none of them are easy or likely.”

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

“Although the capacity of alternative routes is expected to gradually increase, these exports are likely to be more complex and costly compared to the sea route,” Torsa said. “Russian missile strikes targeting rail infrastructure through Ukraine may further complicate logistics.”

Winners and losers

According to Martin, any diversion as a result of changes in world trade would benefit some economies, such as Southeast Asia, Latin America and Africa.

He said, “Exports will be diverted… which requires finding new markets for goods and services, and a logistical situation to accommodate the new trade flows.”

“The biggest loser is likely to be Russia, which, despite its ability to shift some trade links, will become excluded from a significant proportion of the global economy,” Martin said.

Read more about China from CNBC Pro

Lockdowns in China, the global manufacturing hub, have also contributed to disruptions to the shipping industry and commerce.

“What we expect to see in the coming times is clearly less reliance on the large East-West trade routes between China and Europe, as well as China and the United States. Five stops are in China,” said Christian Roelofs, founder and CEO of Container X-Change, the container booking company.

Methods can change and may 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 usually pass on their way to the US – may lose out, explaining that Singapore may be bypassed as shippers from emerging manufacturing hubs in Vietnam and Cambodia move directly to the US. West Coast.

“Some companies have started production closer to home to reduce delivery delays due to factory closures, lower labor supplies, and other factors,” said Jason McMahon, head of geopolitical risk analysis at Morning Consult.

He added that they may also switch to holding larger stocks “as a cushion against future disruptions,” rather than having shorter supply chains.

.