Russia-Ukraine war impact on supply chains and inflation (2024)

FAQs

How is the war in Ukraine affecting supply trade and inflation? ›

Russia's attack on Ukraine placed a further squeeze on critical commodities – food and energy. This was the result of reduced output from both countries and sanctions on Russia. Costs climbed even further, triggering inflation rates that far outpace wage growth.

Supply chain snarls and rising prices

Hundreds of ships laden with wheat and corn have been stranded at Ukrainian ports, as the war restricts shipping in the Black Sea, leading to food shortages and inflation around the world.

Because of Russia's invasion of Ukraine, global food prices hit an all-time high in March 2022. Prices had fallen below their pre-invasion levels by December 2022, and by January 2024, the FAO announced that global food prices had fallen to their lowest level in three years.

War zones disrupt not only local production but also the transportation and logistics channels critical for supply chains. Infrastructure damage, port blockades, and border closures hinder the movement of raw materials and finished goods.

The Russian invasion of Ukraine has had significant impacts on cost-push inflation. The war has led to a global rise in inflation, with major European economies experiencing a significant increase in prices of essential commodities .

A boost in demand, especially amid weak supply chains, can cause widespread shipping and delivery problems. Along with other factors, lack of access to raw materials and labor often contribute to supply shortages, which fuel inflation.

The war has disrupted supply chains. According to our estimations, 90% of steel capacities are not operating now. Some enterprises are trying to resume production and increase volumes, but it is difficult due to downtime of other plants in the supply chain. In particular, most co*king plants have stopped production.

The Russia-Ukraine war's impact on food, fuel, and fertilizer prices is a major concern for global poverty and food insecurity. Despite numerous studies and editorials on the risks and challenges of the crisis, there is little quantitative analysis of its consequences for developing countries.

The ongoing Russian-Ukrainian conflict has led to a catastrophic humanitarian crisis that poses a threat to geopolitical stability and has severely impacted global supply chains. The conflict has disrupted the flow of goods, increased costs, and caused product shortages, resulting in food scarcity worldwide.

Ukraine lost $19.4 billion in exports, while Russia gained $68.3 billion. Russia realized trade gains of $41.1 billion in Asia. The war had limited trade implications for not directly involved countries. Global market adjustments operated mainly through increased commodity prices.

Will Ukraine war cause food shortages? ›

It is projected that almost 600 million people will be chronically undernourished in 2030 if the war is sustained, with Africa – home to some of the world's poorest and most hungry populations – hit the hardest. This is around 23 million more people than if the war in Ukraine had not happened.

The Russia–Ukraine conflict has affected commodity markets through both economic and financial channels and has significantly increased the risk of volatility. In fact, this is greater for raw materials, agricultural products and energy, with a higher global share of exports.

The war added heavily to the inflationary pressures building up in the euro area during the post-pandemic recovery and pushed up consumer prices, especially for energy (Chart 2a) and food. Lane, P.R. (2022), “Inflation diagnostics”, ECB Blog, 25 November.

Event analysis reveals that the Russia–Ukraine war and its subsequent events amplified the high-frequency fluctuation of crude oil prices, resulting in an increase of $37.14, or 52.33% (WTI), and $41.49, or 56.33% (Brent).

According to most estimates, every day of the war in Ukraine costs Russia $500 million to $1 billion. Russia faced a record shortage of factory workers in July 2023, with more than 43% of industrial enterprises facing a shortage, up from 35% in April.

Ukraine lost $19.4 billion in exports, while Russia gained $68.3 billion. Russia realized trade gains of $41.1 billion in Asia. The war had limited trade implications for not directly involved countries. Global market adjustments operated mainly through increased commodity prices.

Supply chain disruptions will contribute to elevated inflation in 2022. Supply chain inefficiencies can be caused by time delays, labor shortages, congestion on transportation routes, or lengthy customs processes. These inefficiencies have a cost, raising prices for consumers.

In broad terms, stock markets and commodities respond most rapidly to the Russian invasion; and post-invasion crisis intensity is noticeably smaller compared to both the Covid-19 and the GFC. Wheat and nickel are the most affected commodities due to the prominent exporter status of the two countries.

Ukraine's economy suffered heavy losses, contracting by over 30 per cent in 2022 according to preliminary national data, and after the end of the conflict, will need large-scale and expensive reconstruction efforts. International support for Ukraine from various partners has remained steadfast over this period.