NEW YORK: In yet another downbeat outlook for global supply chains, the Russia-Ukraine war has increased the prospect of sustained high commodity prices and has overtaken the pandemic-led disruptions creating global economic uncertainties, said Moody's Analytics.
"Global supply chains have been in a fragile state since the start of the pandemic, and the Russia-Ukraine military conflict will only exacerbate the situation for companies in many industries, particularly those heavily reliant on energy resources," said Tim Uy, an associate director at Moody's Analytics. Oil markets were volatile on supply disruptions due to the sanctions on Russia in the previous session, with Russian exports at 4 to 5 million barrels per day more than any other nation other than Saudi Arabia.
The international benchmark for oil - Brent crude futures, rose to within 16 cents of $120 a barrel - highest since 2012, before falling to settle at around $110, on hopes the United States and Iran will agree soon to a nuclear deal that could add output to a badly undersupplied market.
"The greatest risk facing global supply chains has shifted from the pandemic to the Russia-Ukraine military conflict and the geopolitical and economic uncertainties it has created," said Moody's Analytics' Mr Uy.
"The uncertainty over the conflict will lead to higher oil and natural gas prices worldwide, even if additional supply outside of Russia comes on line. Inventory and reserves can help mitigate short-term supply-chain disruptions, but shortages will be inevitable should the conflict persist," he added.
Expectations are that an Iran deal would not replace Russia's disruptions, and the direct impact will be more significant on European countries.
"While the world will be relieved to have seemingly overcome the Omicron variant, a new challenge has emerged where the endgame is not clear. The ever-changing nature of the sanctions (on Russia) being imposed and the fluid nature of what is happening on the ground only add to the uncertainty clouding the horizon," noted Mr Uy.
"What is clear is that this conflict will certainly feed into the increasingly inflationary environment most countries find themselves in. This, in turn, is likely to lead to central bank tightening, higher interest rates, and slower growth. In this sense, the conflict will have broader implications than may first appear; not only is it leading countries to reconsider their strategy for energy security and supply-chain resilience, it is also adversely
impacting companies and consumers with no direct links to the situation via higher prices and interest rates," he added.
