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ASCM Insights

Tracking Sanctions on Russia and their Impact on Supply Chains

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One of the key principles of responsible procurement is to create positive change through your purchasing decisions. In effect: Let your money do the talking. Now, we’re witnessing this principle being applied to international affairs, as both nations and private companies show support for Ukraine with their dollars. While meritorious, the sanctions against Russia are also causing problematic ripple effects.

The most noticeable force here in the United States stems from the ban on Russian oil, liquefied natural gas and coal. “We will not be part of subsidizing Putin’s war,” U.S. President Joe Biden said when announcing the sanction. The Associated Press points out that oil exports have historically been a steady stream of cash flow for Russia.

Similarly, the United Kingdom will phase out Russian oil and oil products by the end of the year. The European Union — which relies on Russia for 40% of its gas and one-quarter of its oil — plans to follow suit when it can, as doing so without significantly damaging its economies will be tricky. The Washington Post reports that U.S. officials are considering expanding production of energy-efficient heat pumps and sending them to Europe to help reduce the region’s dependence on Russia’s natural gas.

Since the invasion started, oil and gas prices around the world have spiked to record highs, and there doesn’t seem to be much relief in sight. People are feeling cost of living increases at the pump and on their natural gas bills. Likewise, the higher price of fuel is raising transportation costs for materials, goods and services — which will, of course, also trickle down to consumers’ wallets. 

In addition, the automotive industry will be affected by sanctions on Russian nickel, a key material for stainless steel and electric vehicle batteries, and palladium, which is used in the production of catalytic converters.

To further strain Russia, the three largest shipping lines are suspending deliveries, with the exception of essential food, medical supplies and humanitarian items. These moves not only serve to cut off Moscow from a large chunk of the world’s shipping capacity, but are also essential to protect supply chain workers. Some people on crews in the Black Sea and Sea of Azov have already been injured or killed, and thousands are stuck on ships amid closures. In fact, The Wall Street Journal says more ships are currently stranded around the globe than at any other point since World War II.

In the skies, Canadian, EU and U.S. airspaces are closed to aircraft owned, registered or controlled by Russia. And Russia has answered with its own airspace controls on the restricting countries. For safety, commercial airlines are avoiding the skies above Ukraine, Moldova and Belarus, leading to longer flight routes and higher fuel costs.

More than 120 consumer goods companies have announced full or partial sanctions of their own. McDonald’s is temporarily closing restaurants in Russia but will continue paying its 62,000 employees there. Coca-Cola suspended operations, and PepsiCo will halt sales of its major soda brands, but still sell milk, cheese, baby formula and other daily essentials. Unilever is adopting a similar approach.

Perseverance amid turmoil

According to Forbes, more than 600,000 businesses rely on Russian or Ukrainian suppliers. Indeed, the global business impacts of the invasion of Ukraine and the act of economically isolating Russia both come at a cost. Nevertheless, Russia’s actions are indefensible and must be condemned.

There are horrors being inflicted upon the Ukrainian people, but if they can find a way to keep going, so must supply chains. Together, our global community must hold to the immeasurable value of human life as we do our part to create a better world through supply chain.

About the Author

Abe Eshkenazi, CSCP, CPA, CAE CEO, ASCM

Abe Eshkenazi is chief executive officer of the Association for Supply Chain Management (ASCM), the largest organization for supply chain and the global pacesetter of organizational transformation, talent development and supply chain innovation. During his tenure, ASCM has significantly expanded its services to corporations, individuals and communities. Its revenue has more than doubled, and the association successfully completed three mergers in response to both heightened industry awareness and the vast and ongoing global impact driven by supply chains. Previously, Eshkenazi was the managing director of the Operations Consulting Group of American Express Tax and Business Services. He may be contacted at abe@ascm.org.

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