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Invasion of Ukraine 'could very well be' the beginning of international economic decoupling, says ICC representative

Many countries would be wondering how to build resilience into their own economic systems following economic sanctions levelled at Russia over the invasion of Ukraine, International Chamber of Commerce​'s Head of Global Engagement Damien Bruckard has told a CEDA forum.

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20/05/2022

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Russia’s invasion of Ukraine and the subsequent sanctions levelled against it have drastically worsened pandemic-fuelled shortages and supply chain shocks, the ICC’s head of global engagement Damien Bruckard has told a CEDA livestream.

Speaking on a panel about the outlook for global supply chains, Mr Bruckard said spot rates for container freight have risen around sixfold in the past two years. He also noted that in 2020 two thirds of shipped arrived on time, compared with two thirds now arriving late. Turnaround times for ships at ports had also doubled, he said.

The Russian invasion of Ukraine had worsened every supply chain issue, with supply and lead times increasing by 15 per cent and input prices rising by 25 per cent. Countries such as China and India would be looking at Russia’s experience of sanctions following its invasion of Ukraine and be wondering how they can build resilience into their own systems, he said.

“We may well be seeing an acceleration of fragmentation in payment systems, with the Russian alternative to SWIFT for instance," Mr Bruckard said. 

"We may see some pretty serious currency changes. Russia is not going to be integrated into the global economy for a really long time. There is starting to be more of a chance of an economic bloc along sort-of democratic lines and an economic bloc along non-democratic lines may start to emerge.”

He also said the invasion had a large impact on food supply chains, leading to a “perfect storm” that was seeing the entire world enter a cost-of-living crisis. Mr Bruckard pointed out that fertiliser prices had risen by 155 per cent, wheat by 32 per cent, maize by 26 per cent and oil and gas prices had risen to record levels, all of which were mutually reinforcing trends.

Mr Bruckard noted that in the developing world, 55 per cent of the costs for smallholder farms were for fertilisers, which they would not be able to absorb. The ultimate effect of this would be “massively lower” crop yields in the next two to three years, which could in turn lead to political and social instability. “That will bounce back to the advanced economies,” he said. 

“There’s a real risk of famine, especially in Africa and the Middle East,” he said, noting a UN prediction that 47 million more people will go hungry this year. 

In addition to the jump in food insecurity, Mr Bruckard said around 108 countries were exposed to potential defaults on their public debt, the first which is probably going to be Russia, “which could well be defaulting in the next couple of weeks.”

Advanced economies needed to be cautious of impulses to onshore their supply chains in response to volatility, Mr Bruckard said. He argued that the approaches seen during the pandemic, including export bans on PPE and vaccine production, were disastrous. Instead, government should double down on the trade agenda and bolster the role of organisations like the WTO in order to prevent further bottlenecks and crunches in global supply chains.

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