At this point, we all know Russia has invaded Ukraine and the fighting has continued over the past couple weeks. The next question remains unanswered, what direct impact the invasion may bring to the US and globally? A lot of it boils down to one thing. Commodities. The big reliance we have on these countries is their commodities that they export.
The first commodity that comes to mind when thinking about these two countries is the oil that Russia exports. The US imports roughly 8% of our oil from Russia while the EU imports much more at roughly 40% of its gas from Russia.
We have just seen that the US is no longer going to import from Russia, and the EU is going to try to dramatically decrease their reliance on Russian oil. That means two things. For one, both the US and the EU need to find a way to substitute for this supply that each will be missing. And second, Russia’s biggest export, just took a major hit in demand. This will shock the Russian economy with an immense impact.
To substitute the supply we normally receive we will most likely rely on our biggest oil trading partners we already have in Canada, Mexico, and Saudi Arabia. We also have the ability to produce more oil domestically to fill in the supply gap we may have and to fight the inflating prices we have seen at the pump.
For the EU, it will be much of the same reliance on other trading partners. The EU will also push towards sustainable energy at a much faster rate than before. However, the EU doesn’t have the same capacity as the US to produce their own energy so their situation is much different.
While oil is the most well known and talked about commodity impacted by the invasion, there are other materials impacted as well. Some of these materials are steel, palladium, neon, and platinum.
Each of these materials have multiple uses, but where we may see the biggest impact of these materials having a declining supply is in the automobile industry. Palladium and neon are used in semiconductor chips while steel and platinum are used in various other car parts. We have already seen the car industry impacted by the lack of supply of semiconductor chips since Covid. And now you add on a lessening supply of steel and platinum that are also used in the industry to the list of hurdles manufacturers have to overcome. We will see the role this plays in the global supply chain of cars over time.
Other goods impacted by the invasion include wheat and corn. This may not impact the US as much, but parts of Europe import a large percentage of these goods for their use. Finding new suppliers of these may be a difficult task.
A disruption to the supply chain of all of these commodities can result in increased inflation as the prices associated with them increase. The US and countries around the globe are already in a very delicate situation when it comes to inflation as we have seen it increase over the past couple years. Any additional outside factors that would potentially increase the inflation we are already experiencing would not be a welcomed sight.
Ultimately, Russia is only the 20th largest supplier of goods to the US according to trade data. The direct impact this invasion has on us is currently being seen by the sharp increase in gas prices at the pump. However, to parts of Europe and other countries around the world, Russia plays a bigger role as their trade partner and supplier of goods. We will have to see how any further disruptions to the global economy and trade will impact both us domestically and others globally.