Russia-Ukraine war will exacerbate challenges in certain supply chains and add to inflation
The Russia-Ukraine war is likely to exacerbate and elongate global supply chain disruptions. Although the U.S. does little direct trade with Ukraine or Russia, certain U.S. businesses and industries face significant exposure from the war: energy, food, and semiconductors are likely to be most affected. While the United States does not entirely rely on imports for these products, their prices are determined in global marketplaces.
The onset of fracking and surge in U.S. energy production in the last two decades has made the U.S. much less reliant on energy imports, with total imports of oil and gas down 63 percent from their 2008 peak.3 In the short term, being cut off from Russia, the world’s third largest energy exporter, and its 4.3 million barrels of crude oil exports per day, will raise prices for both gasoline and plastics. Crude oil traded over $104 per barrel on April 12, up from about $90 per barrel on February 184. Transportation, utilities, agriculture, plastics, chemicals/fertilizers, and metals industries are among the most highly impacted from higher crude oil prices.
The supply and price of global food commodities have also been directly impacted by the war. Russia and Ukraine account for 29 percent of global wheat exports and 17 percent of global corn exports. Chicago wheat futures surged to an all-time high of $13.50 per bushel in the first week of March from less than $8.00 per bushel as of February 21 (a year-over-year change of nearly 90 percent).5 Higher wheat prices will not only affect grocery stores, with food products reliant on wheat to be priced higher, but also animal feeds, eventually driving animal protein, dairy, and egg prices higher. Industrial fertilizers are produced with a large amount of crude oil, but also with ammonia, urea, potash, and processed phosphates, all of which Russia is a top exporter.6 The United States imports 20 percent of its urea from Russia, but Brazil is highly at risk, with 47 percent of its potash, 20 percent of its urea, and 30 percent of their monoammonium phosphate (MAP) supply coming from Russia. Canada and China may increase their fertilizer output to meet global demand, but it will take some time.7
Already strained global semiconductor supply chains could soon feel effects of the war.8 Ukraine supplies more than 90 percent of the United States’ semiconductor-grade neon, Russia supplies 35 percent of United States’ palladium, and Russia supplies 20 percent of global production of semiconductor grade nickel.9 While finding alternative sources of supply is not impossible—semiconductor manufacturers have already announced the creation of manufacturing sites both in and near the United States—it will take time, exacerbating semiconductor shortages.