Impact of Russia-Ukraine war on EU value chains – stockpiling opportunity?
The Russian invasion of Ukraine has already heavily impacted financial markets and the worldwide economy. When global supply chains had been recovering from the pandemic, the war in Ukraine introduced several unknowns for global trade, financial markets, multinational corporation, and national economies.
Specifically, the war is expected to significantly impact food, energy as well as raw materials supplies.
While the European Commission is expected to publish a proposal to cut dependency from Russian gas as early as this year, many European countries are currently heavily dependent on Russian energy, particularly gas through several vital pipelines.
In addition, both Russia and Ukraine play important role in the trade of key agri-food products. Together they account for more than a quarter of global wheat exports, while Ukraine alone makes up almost half of exports of sunflower oil.
Russia is also a major exporter of crop nutrients as well as natural gas, which is critical for producing nitrogen-based fertilisers. Indeed, 25% of the European supply of the key crop nutrients nitrogen, potash and phosphate come from Russia.
The consequences of the war for the agri-food sector might prompt the EU to review its objectives under the EU Green Deal.
Additionally, the aerospace sector is preparing for supply disruptions of titanium, mostly imported from Russia. Moreover, Russia and Ukraine are both producers of metals such as nickel, copper and iron. Russia is dominant in the markets for a number of other important commodities, such as aluminium and palladium.
While it is still early to determine the overall impact of the war on global trade, additional supply shortages for key industry value chains should be expected.
As a remedy to the disruptions linked to this crisis but above all to future crisis, the EU might envisage to build a stockpiling strategy, which consists of progressively constituting a reserve supply of essential material or commodities for use during a shortage. In doing so, the EU should ensure strong coordination and alignment amongst Member States at all phases of stockpiling to maximise the value of stockpiles in times of crisis and to avoid disrupting well established processes in logistics and warehouse management.
What could have been a lesson learnt from the Covid19 pandemic could finally make it way through in future EU policies as a consequence of the war in Ukraine.