Analysis from The Guardian, Roy Williams, today describes the interconnectedness of the global supply chain and how the crisis in the Ukraine affects global participants. He addresses the situation from that of a risk analyst. Instability increases business risk, especially when supplies are in harms way. For instance, Russia invaded the Ukraine. Before that, the Ukraine government was overthrown because the President was a puppet of Russia and his way into office was corrupt. Citizens protested and made a change. The change was not and is not complete. That makes the Ukraine unstable.
The Ukraine owes Russian billions while it is dependent upon Russia for fuel. The fuel line from Russia to Europe passes through the Ukraine. European Union nations and the US sanctioned Russia for its actions against the Ukraine. Russia threatens to turn off the flow of fuel to European customers in retaliation.
Meanwhile, Russia and China have signed a new energy deal whereby Russia has a new customer for its fuel. That may offset hardship from sanctions and further destabilize the European economy. Increasing potential default by the Ukraine on its debt creates more risk.
So you see, one thing leads to another.
The US has charged China with cybercrime, spying and theft. China is a very large trading partner and financier. That increases risk even more.
“Ukraine crisis: how supply chains have become a global battleground
With political change comes business risk, and the reality is that some companies previously unaware of their reliance on Ukraine are about to be affected
theguardian.com, Tuesday 20 May 2014 07.30 EDT
As the Ukraine crisis escalates, concern is growing over the potential fallout for the UK economy. Further Russian trade sanctions could cause the price of vital supplies of grain and natural gas to rocket, or even cut off supplies at short notice. This would leave Europe, the UK and other areas of the world potentially experiencing power shortages and rising energy and food prices.
British businesses that source raw materials from Ukraine or Russia – or those reliant on products comprising one of these components – should take action now to minimise risk and protect their business. As political change is likely, businesses need to be aware there is a high risk that environmental and other ethical requirements linked to a specific supply contracts could be overlooked.
In 2013, Europe sourced 40% of its natural gas from Russia, along with significant volumes of oil and coal. Germany is by far the largest recipient of Russia's natural gas and the UK imports considerably less, but the impact of any break in supply would have a major impact across the EU. Ukraine is a leading global exporter of finished iron products and iron ore, as well as grain such as wheat, corn and barley, and seed oils. A significant proportion of these goods are exported to European countries, including the UK.
Given Europe's dependency on these supplies, sanctions such as trade embargos or retaliation would be an extreme course of action for the EU or Russian government. Nevertheless, mounting concern about the potential impact of the crisis could lead to a rise in prices, including hikes in the cost of products from areas that might be able to provide a more stable source.
[Read the rest of Roy’s analysis.]
Roy Williams is managing director at Vendigital supply chain consultancy
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