CWA # 721
NIAS Fortnightly on Science, Technology and International Relations
Russia-Ukraine war: Disruption in the supply chains
|
STIR Team
5 April 2022
|
Photo Source:
Russia’s invasion of Ukraine hit the global supply chains that were recovering post-COVID-19 pandemic. The war has affected industries and commodities ranging from wheat, semiconductors, and even fertilizers. The ongoing war has furthered the possibility of a shift from global to regional sourcing of goods and commodities to strengthen supply chains and deter the possibility of disruptions. The war has also renewed the push for countries, MNCs, and other businesses to become self-reliant or integrate themselves closer to the resource and the consumer market.
Vol 1, No. 19, 05 April 2022
Cover Story
By Ashwin Immanuel Dhanabalan
Russia-Ukraine war: Disruption in the supply chains
Supply chains are defined as the management of a system that includes all processes from the resource to the final products. Supply chain disruption is the discontinuity in the process due to natural disasters, pandemics, or war. These disruptions can be short-term and long-term, but their impact on businesses and supplies can be reduced by supply chain management (SCM).
On 24 March, Forbes released an article that mentioned how the global supply chains faced disruption following the invasion of Ukraine. The article highlighted the soaring gas prices caused by the war in eastern Europe that was further accentuated by sanctions and measures by other countries against Russia that plummeted the energy sector of Europe into a crisis. However, the war has affected the humanitarian crisis in eastern and western Europe; it has also caused ripple effects that impact the humanitarian situation in other countries that depended on Russia for commodities such as sunflower oil. Ukraine is the largest exporter of sunflower oil globally, and thus the war has stemmed inflation in many countries. For example, Brazil faces a shortage of fertilizer as it depends dominantly on Russia for its fertilizer needs.
I
Disruption in the supply of essential items
Sunflower oil
Since it has been established that Ukraine is the largest supplier of sunflower oil, countries in Southeast Asia have stepped up their production of palm oil to compensate for the shortage of edible vegetable oils. Ukraine is responsible for 46 per cent of sunflower seed and sunflower oil production, while Russia is the second-largest producer with about a 23 per cent stake in the global supply. India imports 13 million tonnes of sunflower oil from Ukraine and Russia which accounts for 60 per cent of its total edible oil requirement. However, due to the war, India reached out to Malaysia and Indonesia to increase their palm oil export to the country and balance out the disrupted supply of sunflower oil from Ukraine.
Wheat
Ukraine and Russia accounted for almost 30 per cent of global wheat exports. The region is called the breadbasket of Europe for its surplus production of wheat. However, due to the war, a looming crisis has put many countries at risk of food insecurity. Countries such as Turkey, Egypt, Bangladesh, and Iran depended on the two countries for almost 60 per cent of their wheat imports. The UN’s Food and Agriculture Organisation also warned of a possible humanitarian crisis in Asia, sub-Saharan Africa, and Northern Africa due to the disruption of wheat supplies and its increase in price from other sources.
Oil and gas
Prices of oil and gas have increased sharply, owing to the war. As sanctions and restrictions have been imposed on Russian oil and gas, the world faces an acute disruption of oil supplies. At the same time, the EU has shifted its dependence away from Russian oil and gas and turned towards the US, which indicates a shift in policy and a diversification of their supply chains for energy sourcing. US President Joe Biden also announced the historic release of strategic oil reserves to counter the acute oil supply shortage and stabilize oil prices. This would compensate for the Russian oil and gas that the US and its allies have sanctioned.
Semiconductors
The war in Eastern Europe may lead to a shortage in the already overstretched semiconductor industry. The industry is critical for many other industries that require the chips for their automobile, manufacturing industries, and other electronic devices. Ukraine produces 70 per cent of Neon while Russia produces 40 per cent of the world’s Palladium. Both resources are crucial for the production of semiconductors. Therefore, with a shortage in its supply due to the war, the prices of the two resources have exponentially risen, causing a price hike in the production of semiconductors. However, companies had stockpiled semiconductors to deter a shortage. Nevertheless, stocks are limited, and with the war continuing, there is likely to be a major shortage soon.
II
Impact of sanctions on supply chains
Trade sanctions
The impact of sanctions on Russia has had a controlled effect on the Russian economy. Unlike the sanctions imposed in 2014, the sanctions implemented in 2022 were more organized and executed in a phased manner that significantly targeted the Russian economy. The sanctions on Russian financial institutions such as its banks and Moscow’s removal from the SWIFT payments system have led to daily business disruptions. Furthermore, these sanctions impact the economy and businesses that are interconnected to the global supply chains.
Response to the sanctions
Russia is likely to react to these sanctions and reduce its exports of rare earth minerals, natural gas, and agricultural commodities that are vital for Europe. As a result, Europe can opt for a shift in its supply sources. However, that would come at a price. Russia is also preparing and discussing ways to circumvent sanctions through its allies or trading with already sanctioned countries like Venezuela and Iran. This would further disrupt global supply chains as an informal channel of supplies would run parallel to the mature supply chains.
III
Shift from global to regional sourcing and self-reliance
With the world taking a step back from globalization due to the pandemic, trade wars, and the war in Ukraine, there are three reasons for a shift from global to regional sourcing and self-reliance.
First, is the impact of the pandemic and the US-China trade war.
COVID-19 and its disruptions have sent shockwaves through the global markets and supply chains. Countries and MNCs realize their vulnerabilities in their firms’ production strategies and supply chains. Furthermore, the trade war between US-China accentuated many companies to relocate their production facilities to other regions. Southeast Asia was one of the lucrative regions for setting up global production facilities due to its access to major trade routes, proximity to global markets, and access to sea lanes and hinterland.
Second, increase in regional sourcing, and self-reliance.
The war in Ukraine and changing challenges to business and industries have renewed the push for regional sourcing and self-reliance. As a result, MNCs have been opting to divert their bases and suppliers. Nevertheless, the unpredictability of circumstances has made countries to be more self-reliant. Furthermore, companies are now looking for regional strategies to produce goods that could be sold and consumed within the region and rely less on trading companies. This would also deter logistical complications that arise with the increase in distance.
Third, complex interdependence and its shortcomings
The war in Ukraine highlighted the EU’s vulnerability to Russia because of its complex interdependence. Cyber security is one of the major concerns of the EU as many hardware parts and software used in Europe were supplied by Russia. For example, Germany urged the users of Kaspersky antivirus software to uninstall it, citing vulnerability to cyber-threats from Moscow. Furthermore, the EU also plans to limit Russia’s access to high-tech products and software to cease the development of Russian military capabilities.
Another issue of concern was Europe’s dependence on Russian gas. Russia supplies the EU’s 40 per cent gas needs. However, On 3 April, Germany’s Defence Minister Christine Lambrecht urged the EU to discuss the banning of Russian gas for its atrocities in Ukraine. As a result, the EU has turned to the US to compensate for its energy needs. Yet, the supply would not be the same as the total supply under the agreement would only represent 24 per cent of the gas that is currently imported from Russia. Nevertheless, this would increase the EU’s dependence on the US, contradicting its policy of strategic autonomy.
Thus, complex interdependence between the two regions has pushed the EU to look for other viable options for its energy needs. The war has even made the EU rethink its strategy of moving away from nuclear energy sources. On 18 March, Belgium, a country also a part of the EU, extended its nuclear power production from 2025 to 2035.
IV
Way forward
Reduction in a complex interdependence.
Globalization and complex interdependence have brought countries closer, but the closeness and dependency can have significant ramifications during a pandemic or a war. Post the COVID-19 pandemic and the US-China trade wars, MNCs moved out of China and headed toward countries like Vietnam, Indonesia, and Malaysia. This helped them continue their businesses and products without being affected by the trade war sanctions and tariffs. However, the war in Ukraine has pushed companies to rethink their strategies as the sanctions imposed on Russia crippled its economy and the MNCs that stayed back in the country. Therefore, countries and companies would have to move to become more self-reliant or have multiple sourcing points and trading points to manage disruptions. This idea of bringing companies closer to the home could give them more control over foreign policies and volatility.
Managing the risks, diversification, maintaining inventory, and planning parameters.
Apart from becoming more self-reliant, countries have to also consider diversifying their global supply chains. Moving to tier two countries or countries with direct connections to global supply chains like China could help companies be more resilient to disruptions. Apart from that, just as MNCs and countries that handle the semiconductor industries have kept stockpiles of it in case of a shortage. Countries and MNCs should create an inventory of critical supplies to counter short-term disruptions, similar to strategic oil reserves that certain countries have maintained in the advent of an oil crisis.
Monitor Logistics
When the war broke out in Ukraine, Kyiv could not access its port cities as the Russian armies had blockaded them. However, Ukraine reached out to Romania to continue its supplies through land and through a Romanian port to export its wheat globally. Likewise, monitoring logistics is crucial for business continuity and managing costs. Even Russia parked its oil in Singapore and Malaysia in the advent of sanctions to sell them off discreetly and continue its supply to the global markets.
Prepare for disruptions caused by conflicts
Countries, MNCs, and organizations are now working to make their supply chains resistant to disruptions. With each passing day of inactivity, companies lose billions of dollars in production costs and upkeep. Therefore to counter this, countries and MNCs are now conducting global scenarios to assess the nature of the conflict, whether the conflict is short-term or long term and to create contingency plans that would deter supply chain disruptions.
References:
Jim Kilpatrick, “Supply chain implications of the Russia-Ukraine conflict,” Deloitte, 25 March 2022.
David Simchi-Levi and Pierre Haren, “How the War in Ukraine Is Further Disrupting Global Supply Chains,” Harvard Business Review, 25 March 2022.
“Global Business Impacts: Russia-Ukraine Crisis,” dun & Bradstreet, 2022.
“Global Supply Chains Face Disruption Following Russia’s Invasion Of Ukraine,” Forbes, 24 March 2022.
Edward Segal, “Supply Chain Crisis Worsens As Russia’s War Against Ukraine Continues,” Forbes, 2 April 2022.
Edward Segal, “Ukraine Crisis Creates New Strains On Global Supply Chains,” 6 March 2022.
“War in Ukraine to hurt poor nations importing grain - UN,” Africa News, 11 March 2022.
Maciej Kolaczkowski, “How does the war in Ukraine affect oil prices?,” World Economic Forum, 4 March 2022.
Mathieu Pollet, “Ukraine war could further disrupt semiconductor production,” Euractiv, 7 March 2022.
“EU signs US gas deal to curb reliance on Russia,” BBC, 25 March 2022.
Dave Keating, “Will the Ukraine War change Europe’s thinking on nuclear?,” 24 March 2022.
About the author
Ashwin Immanuel Dhanabalan is a research assistant at the National Institute of Advanced Studies. He is a part of the Europe studies program at the institute, and his research in the program looks at regional politics, governments, and governance. He also monitors geopolitical changes in Southeast Asia.
In Brief
By Akriti Sharma and Harini Madhusudan
Health: Human genome sequenced
On 31 March, according to the findings published in Science, the first complete sequenced human genome was discovered. Scientists were able to fill the gaps and correct the mistakes of the previous version which was discovered in the early 2000s. The sequence is supposed to be the most complete reference genome for any mammal so far. In 2001, the first human genome was sequenced as a part of the Human Genome Project but it was neither complete nor completely accurate. So far, only 92 per cent of the genome code was available and the remaining 8 per cent was missing. According to the Time, Evan Eichler, professor of genome sciences and the lead author of the paper said: “While the original goal of the Human Genome Project was to order and orientate every base pair, that couldn’t be achieved because the technology wasn’t sufficiently advanced enough. So we finished the parts that we could finish.”
The newly sequenced genome regions include previously inaccessible sections such as the centromeres. It is the central portions of chromosomes that keep the double strands of DNA organized which unwind and separate into two cells. Centromeres are critical for normal human development and play a role in brain growth and neurodegenerative diseases. For years, the scientists did not have any centromere sequence to study. Scientists were also able to sequence the long stretches of DNA called the “junk DNA”. Additionally, many critical genes which are embedded in this junk DNA can help in distinguishing the human species from the primates.
A human contains two sets of chromosomes, maternal and paternal. Each of the chromosomes has different versions of the genes resulting in two genomes. In the future, the researchers will focus on generating a more complete genome using both maternal and paternal DNA, so that human development. The more sequenced genomes will help scientists to understand new diseases and their therapies/treatment. Such sequenced genomes can be kept as medical records of a person which would allow doctors to analyze medical difficulties effectively. However, it would require more research and advanced technology for each person to have their sequenced genomes recorded in their medical history. (Sergey Nurk et al, “The complete sequence of a human genome,” Science, 31 March 2022; Alice Park, “The Human Genome Is Finally Fully Sequenced,” Time, 1 April 2022; Michelle Roberts, “Gap-free human genome sequence completed for the first time,” BBC, 1 April 2022)
Technology: Remodelling the cryptocurrency Ethereum
On 2 April, the data released by The Block revealed that the total monthly revenue made by Ethereum miners between February and March 2022, increased by 7.2 per cent. These miners have made a total of USD 1.29 billion in the month of March, second to the all-time high reached in November 2021.
Cryptocurrencies are often criticized for their rising amount of energy intake for their transactions. The world’s popularly used blockchain Ethereum faces the brunt of environmentalists’ complaints. Ethereum raises concern due to the rising gas fees. On 2 April, Ethereum announced its plans to make a massive upgrade to its infrastructure promising a consumption of up to 99 per cent less energy. The system wishes to do this by shifting its model from a Proof-of-work model to Proof-of-Stake.
One of the biggest consumption of energy during crypto mining is the enormous amount of electricity required to secure their networks, and validating these cryptocurrency transactions on a blockchain network, and add them to a ledger. This proof-of-work algorithm consumes a lot of computing power and resources. A single Ethereum transaction equals the energy consumed by more than 1,50,000 visa card transactions. This equals over 137 terawatt-hours of electricity per year. Hence, computational power drives the ability to mine. In a Proof-of-Stake model, the process includes the random choice of a node to validate the next block, this brings down the competition among miners for a block. Though this model promises the reduction of the consumption of energy, it may give an undue advantage to the richer miners.
While cryptocurrency is seen as a speculative asset, it is a rising tool to build software that sets the rules for future transactions. It provides cheap and fast payments, and decentralized financial models, and is building a consumer base specifically in the gaming industry. This shift in the business model of an already bustling bitcoin venture would make it more beneficial to the users when the gas fees are brought down. Ethereum retains a large base of users and developers and these specialized financial applications would bring down the high fees making it more competitive for other blockchains to catch up. However, it could also create an ecosystem of rival blockchains to cause a splintering of uses, giving rise to multiple energy-related challenges. (Tomio Geron, “These are the blockchains that want to take down Ethereum,” Protocol, 12 October 2021; “Ethereum Rising Gas Fee Causes Concern Among Projects, Good Opportunity For BITGERT Blockchain," Analytics Insight, 1 April 2022; Mehbab Qureshi, “Proof-of-stake: How Ethereum’s next big switch could change the crypto mining industry forever,” The Indian Express, 2 April 2022; Catarina Moura, "Ethereum miners reach $1.29 billion in revenues in March," The Block Crypto, 2 April 2022.)
S&T Nuggets
By Harini Madhusudan and Akriti Sharma
CLIMATE AND ENVIRONMENT
Environment: Global demand for wind and solar energy
On 31 March, according to an analysis “Global Electricity Review 2022” done by Ember, wind and solar energy produced in 2021 accounted for 10 per cent of the global electricity usage. Fifty countries produce one-tenth of their power from wind and solar energy. Along with solar and wind, other clean energy sources produced 38 per cent of the global power last year. As the world recovered from the coronavirus the global energy demand soared. The Netherlands, Australia, and Vietnam were the major countries that rapidly shifted a tenth of their electricity demand from fossil fuels to clean energy sources in the last two years. However, the increased demand for electricity in 2021 was majorly met by fossil fuels with coal-fired electricity rising by 9 per cent. The rise in coal was majorly in Asian countries including China and India. The rising prices for gas made coal a more viable source of electricity. (Matt McGrath, “Climate change: Wind and solar reach milestone as demand surges,” BBC, 31 March 2022)
Environment: Antarctic ice shelf collapse
On 25 March, a 450 square mile Conger ice shelf in Wilkes Land collapsed. According to the National Ice Center, it was first noticed by the Australian Bureau of Meteorology through satellite images taken on March 17. The ice shelf is the floating ice at the end of glaciers that serves as outlets for massive ice sheets. Loss of ice shelves can be followed by loss of glacier ice which can result in an increase in the glacier melt and a rise in sea levels. Collapsing of the ice sheets in Antarctica has become a greater concern due to the changing climate. If the ice shelves of the glaciers in Antarctica start to collapse then the sea level can rise to about 10 feet in the coming decades. (Henry Fountain, “In a First, an Ice Shelf Collapses in East Antarctica,” The New York Times, 25 March 2022)
Brazil: Recurring flash floods and landslides
On 2 April, due to the torrential rains, Rio de Janeiro witnessed flash floods and landslides. According to Al Jazeera, at least eight people were killed and 13 went missing. In February 2022, 94 people died due to landslides and floods in the city of Petropolis after which the city hall declared a three-day mourning. In January 2022, 28 people died due to floods and landslides in Sao Paulo state. According to the experts, the heavy rainfall is a result of La Nina and climate change. There has been an increase in the frequency of extreme rainfall and floods in Brazil in the past years. Global warming accelerates the ability of the atmosphere to hold more water which results in extreme rainfall. (“Brazil: Floods and landslides kill eight, 13 missing,” Al Jazeera, 2 April 2022)
HEALTH
Health: 3D cardiac tissue printed
On 2 April, a team of researchers from China, Britain, and the Netherlands printed a 3D cardiac tissue that can sustain pulses for more than six months. The researchers were from Tsinghua University, the University of Manchester, Delft University of Technology Aad the Chinese Academy of Sciences. The research was published in the journal Bioactive Materials. They were successful in overcoming the limitations of conventional bioprinting systems. 3D bioprinting can help in fabricating simple tissues. However, it still faces challenges in preserving cell functions in complex organ production. The process can form a vascular network similar to the internal organs and sustain the long-term survival of the printed tissue and organs. (“Researchers print 3D cardiac tissue able to sustain pulses for over 6 months,” CGTN, 2 April 2022)
China: Lockdown in Shanghai
On 27 March, China announced its largest city lockdown in Shanghai since the coronavirus outbreak two years ago. On 26 March, the city recorded the highest number of cases. The city authorities have been using social media platforms like WeChat to communicate with the public. The government sent military and healthcare officials to address the pandemic and conduct tests in the city. The People's Liberation Army (PLA) sent more than 2,000 medical professionals from the army, navy, and joint logistics support forces. The city has imposed a two-stage lockdown to contain the coronavirus outbreak in the financial capital. (“China sends military, doctors to Shanghai to test 26 million residents for COVID,” Reuters, 4 April 2022.)
SPACE
Space: Rocket Lab prepares for mid-air booster recovery
On 2 April, a rocket-lab electron launched two BlackSky imaging satellites. The satellites are launched to an orbit at 430-kilometre. The launch is the latest in the series of satellites after May 2021 (failed), November 2021, and December 2021. SpaceFlight has shifted its development focus towards a Gen 3 series of satellites promising improved resolution. After three successful recoveries of electron boosters when they splash into the ocean, the company has been aiming to recover boosters mid-air by catching them with a helicopter. This would mark the final setup before reusing the boosters. (Jeff Foust, “Rocket Lab launches BlackSky satellites as it prepares for mid-air booster recovery,” SpaceNews, 2 April 2022.)
China: Tianzhou 2 re-enters the atmosphere
On 31 March, the cargo spacecraft was deorbited after completing the tests of on-orbit docking, refueling, and module transposition for the Chinese Space Station. The satellite reentered the atmosphere after its 10-month mission, over the South Pacific, which is largely known as a spacecraft cemetery. This makes way for the arrival of the Tianzhou-4 care spacecraft carrying supplies and fuel ahead of the May 2022 arrival of the Shenzhou-14 crew. China has planned six missions in 2022 to complete its space station which includes two crewed, two cargo, and two module launches. (Andrew Jones, “Chinese spacecraft reenters atmosphere ahead of new space station missions,” SpaceNews, 31 March 2022)
Philippines: First country in southeast Asia to access Starlink
On 31 March, the government of the Philippines announced that they would access the Starlink broadband services, making them the first country in Southeast Asia to access the services. The Starlink system will augment and complement the existing broadband capacities. It aims to deploy three gateways initially and target areas where connectivity has been difficult. SpaceX also aims to set up a wholly-owned subsidiary in the country. This initiative has been made possible following the amendment to the Public Service Act, which allows 100 per cent ownership for investments in telecoms, transport, and other essential sectors of public welfare. (Jason Rainbow, “Starlink eyes Southeast Asia foothold with the Philippines,” SpaceNews, 31 March 2022.)
TECHNOLOGY
The US: Meta accused of undermining TikTok
On 1 April, according to the Washington Post, Facebook’s home company Meta paid a consulting firm “Targeted Victory” to portray TikTok as a danger to American children. Though the chief executive of this political consulting firm has called the “key points completely false,” A statement from Meta said: “We believe all platforms, including TikTok, should face a level of scrutiny consistent with their growing success.” In the internal emails reviewed by the Post, it was revealed that the company Targeted Victor nudged its partners to push stories into the local media linking the TikTok platform to dangerous trends. (“Facebook in 'bare-knuckle' fight with TikTok,” BBC, 1 April 2022.)
Technology: Role of tech companies and erasure of political narratives
On 31 March, an article by BBC looked into the role of powerful artificial intelligence combined with the work of human moderators that were involved in removing uploaded videos that broke their rules in some way. These methods were used to remove such uploaded data at a lightning speed where 94.2 per cent of them were taken down before anyone had seen them. These systems look for “violative content” and have removed 17 million videos automatically and up to 80 million videos taken down just by TikTok keeping such rules. Many allegations have revealed that Big Tech is removing content that includes the video records of the moving footage of war crimes in Ukraine. With just Ukraine as a case, it brings an ethical question of how much user-generated content can be taken down in the name of rules by big social media companies such as Meta, Twitter, and YouTube. (James Clayton, “Are tech companies removing the evidence of war crimes?,” BBC, 31 March 2022)
About the authors
Harini Madhusudan and Akriti Sharma are PhD Scholars at the School of Conflict and Security Studies, NIAS. Ashwin Immanuel Dhanabalan is a research assistant at NIAS.
