Introduction: As we continue our analysis of the Russia-Ukraine conflict this week, we re-emphasize the war’s implications for food, energy, trade, and national security. As the West continues to respond, we emphasize cool-headedness and wisdom in dealing with the more personal implications of the conflict for our lives as markets continue to assess the fallout.

The Russia-Ukraine Crisis is a Food Security Issue Too

Russia’s War on Ukraine Threatens a Global Food Security Crisis – Oleg Ustenko, Economic Advisor to the President of Ukraine, Financial Times 

Food Crisis Looms as Ukrainian Wheat Shipments Grind to Halt – Emiko Terazono, Financial Times

Russia’s invasion of Ukraine is threatening global food security. Ukraine, known as the “breadbasket of Europe,” is the world’s fifth-largest exporter of wheat, supplying nearly a third of the world’s total wheat exports. Ukraine is also a major exporter of sunflower products, corn, barley, and other agricultural products. Since Russia began its military assault on Ukraine on February 24th, ports on the Black Sea have come to a standstill and wheat prices have soared to record highs, escalating beyond the prices seen during the food crisis of 2007-08. The prices of wheat and other agricultural exports are set to get worse if Ukrainian farmers cannot begin what is called their spring sowing campaign. The regular window for spring planting – the first 10 days of March – has already been disrupted by Russia’s attacks on Ukraine. The most productive parts of Ukraine in terms of agricultural production are being heavily shelled by Russian forces, making working in the fields practically impossible for farmers. Furthermore, many farmers have joined the fight against Russia: “Ukrainian farmers are resilient. But they also have other important tasks at hand. These currently include capturing Russian military equipment, blowing up fuel convoys, and allowing demoralized Russian soldiers to talk with their mothers.” 

While the countries most dependent on wheat from Ukraine, like Lebanon, Syria, and Libya, and those dependent on wheat from Russia, like Turkey, will feel the brunt of the rising wheat prices, the rest of the world will also suffer from it. Higher commodity prices will exacerbate inflation pressures around the world, including in developed countries. Oleg Ustenko, an economic advisor to Ukrainian President Volodymyr Zelenskyy, warns that the world needs to act very quickly on this threat to global food security as it could lead to widespread hunger, budget pressures, and inflation shocks. As we can learn from the food crisis of 2007-08, high food prices often trigger unrest. When wheat prices spiked to record-highs during this period, protests spread through nearly forty countries, and the jump in grain prices in 2009-10 is often regarded as one of the factors that led to the Arab Spring uprisings in the Middle East. While Russia’s war with Ukraine has been primarily viewed as a national security and energy security crisis, it is also a food security crisis that will have major consequences that are felt across the world. In the words of Oleg Ustenko, “This cost will mostly fall on Ukrainians and the unfortunate Russian conscripts sent to fight us. But it will also fall on people around the world who worry about how much food they can afford to buy for their families.”

Putin’s War is a Battle of Economics

Global Economic Implications of the Russia-Ukraine War – Economist Intelligence Unit 

The New Energy Shock: Putin, Ukraine and the Global Economy – Derek Brower, Tom Wilson, and Chris Giles, Financial Times 

What Does Banning Russian Oil Mean for Global Energy Markets? – Derek Brower, Justin Jacobs, and Myles McCormick, Financial Times

The widespread impact of the conflict between Russia and Ukraine has become clearer in the two weeks since Putin’s invasion. The reach of financial sanctions has dramatically affected commodities prices, disrupting supply chains around the world. Crude oil, gasoline, wheat, and nickel have risen between 35-220% since February 24th. As the prices of raw materials and agricultural goods soar, finished and derivative products will follow suit, aggravating inflation across the spectrum of goods (the Economist Intelligence Unit – EIU – expects inflation to increase well above 6% globally). Air, sea, and land trade routes will also be impaired by the conflict as movement through Ukraine and Russia becomes excessively dangerous, difficult, or costly. Such barriers will weigh on global growth; the EIU halved its projections for European growth in 2022 as a result of these challenges. In an effort to stem the tide of inflation, the US has pushed oil producers to increase supply, with little success. This move has also drawn criticism from climate activists as increasing reliance on fossil fuels rather than investing in alternatives, amplifying energy security concerns. Despite the fragile situation of the energy economy, the White House nonetheless announced a ban on Russian energy imports on Tuesday. Though the USA’s imports of Russian oil make up only a tiny fraction of Russia’s exports, the reputational risk associated with buying Russian energy (as demonstrated in the blowback against Shell’s decision to buy Russian oil) has led to voluntary boycotts. Russia has threatened to respond in kind by cutting off natural gas supplies to Europe via the Nord Stream 1 pipeline. Should the EU follow the US in banning Russian energy imports, energy prices could double again as supply dries up, even with non-Russian suppliers working in overdrive to meet demand. As energy security concerns abound, the West must balance short-term and long-term interests to shore up its defenses in a rapidly evolving global landscape.

Another Shipping Industry Crisis

The Invasion of Ukraine Is Causing Crisis at Sea – Elisabeth Braw, Foreign Policy

Bunker shock: VLSFO and gasoil surge past $1,000 barrier for first time ever – Gary Dixon, TradeWinds 

As we have discussed in our recent commentaries, Russia’s invasion of Ukraine has created a multi-faceted security crisis. It is a crisis of national/international security, energy security, food security, and trade security. Russia’s actions have created havoc not just for shipping activity in the Black Sea, but also for the shipping industry around the world. With heavy Western sanctions, the closure of ports to Russian vessels, and bans from the world’s largest shipping lines, Russian ships have nowhere to dock. The United Kingdom (UK) and Canada have banned Russian ships from their ports, and the European Union is expected to follow suit. Mediterranean Shipping Company, Maersk, and CMA CGM, the world’s three largest shipping companies, have all suspended container traffic to and from Russia and will only make humanitarian deliveries of food and medication. All of this means Russia is only able to send and receive goods primarily through Asian shipping companies like China’s COSCO. While these bans on Russian ships and ports necessarily send a clear message to Russia, the global shipping industry has been thrown into crisis once as it continues to deal with the negative impacts of the Covid-19 pandemic. Russian ships cannot deliver the cargo they have onboard and, also, cannot collect cargo from customers. Shipowners across the globe are facing extremely high shipping prices due to surging oil prices, trade congestion, delays, and other supply chain disruptions caused by Russia’s war in Ukraine. For example, bunker prices have risen above $1,000 per ton for the first time ever as prices of very low sulfur fuel oil (VLSFO) and marine gas oil have hit record highs over the last week. The price of gasoil in North America, as quoted by the Marine Bunker Exchange, rose 15% in one day, hitting a shocking $1,302.75 per ton. Meanwhile, crews on these vessels that no longer have a valid destination are stuck at sea while seafarers aboard the 140 cargo ships stuck at Ukraine’s now-closed ports are unable to leave due to the extreme risk of travel through the Black Sea. The International Maritime Organization will hold an emergency session this week to address the repatriation of crew members and the need to get food and supplies to the crews stuck at ports in Ukraine. The situation has become even more dire as Russia sets its sights on the Port of Odesa, Ukraine’s largest port. Even if the efforts of shipping companies, maritime organizations, and diplomats succeed in repatriating stranded seafarers, the shipping industry will continue to face chaos thanks to Russia.

Ukraine Reveals Nature of War in the Age of Weaponized Networks

Rana Foroohar, Financial Times

Read the full article here 

Putin’s invasion of Ukraine has outraged many progressive sensibilities with its 20th-century great-power motivations, but it is not a 20th-century war. Russia’s actions have refuted the (admittedly naive) notion that a globalized liberal order can prevent bloodshed through vital interconnectivity across all sectors of public and private life. Rather than preventing conflict, they become the objectives of it; if war is the engine of economics, any valuable thing, be it land, people, capital, or indeed networks of interconnectivity, can be objects of power. Indeed, these networks have already been utilized by both sides of the conflict. Since significant portions of these networks are built on private infrastructure, they both amplify state power by increasing the efficacy of their weaponization and decrease centralization by requiring the complicity of private actors. For example, Facebook has taken measures to mitigate Russian propaganda, but it has not completely taken down its network in Russia, as the West has pressured it to do. Networks of interconnectivity can simultaneously increase and decrease the fragility of global relations; Russia’s war with Ukraine serves as the most recent reminder of the new battlefields in play today.