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WEST PARALYZES RUSSIAN ECONOMY, AND WEST’S ECONOMY IS PAYING THE PRICE
In response to Russia’s invasion of Ukraine, Western nations united to effectively cut off Russia’s economy from the rest of the world.
And while the West’s measures have hit Russia hard, what is absent from media coverage is the economic toll it will also take on the West and much of the world.
The ruble was trading at a value equivalent to a tenth of a penny over the weekend, a loss of a hundredfold since the invasion, making it worthless outside of Russia. Visa and Mastercard are suspending services there this week. Western companies from Volvo to Microsoft are shutting down services and operations in the country (see related story in this issue).
Russia’s central bank doubled interest rates to 20 percent to try to attract investment, a rate that will paralyze economic growth. The country’s stock market has been closed for a week to prevent a market crash.
TREND FORECAST: How will Russia fight against the sanctions being imposed upon it and the scores of businesses and financial institutions leaving the nation? Russia has bolstered itself over a long period of time—even prior to the Ukraine War—in preparation for the assault by creating as much of a self-sufficient economy as possible, in line with our Top 2022 Trend of self-sufficiency.
Going Gold
Russia has amassed at least an estimated $630 billion in gold, foreign currencies, and other forms of liquidity. It created “Mir,” its own internal payments network, in case it was cut off from the world’s banking system. It transferred significant portions of its foreign holdings to China, which has refused to condemn Russia for its military actions against Ukraine.
However, at least 40 percent of those assets in reserve were held in countries that have joined in the sanctions, denying Russia access to them.
Russia stored the rest in China, meaning that Russia can spend those funds only in China. To use them elsewhere, Russia would have to convert the assets into dollars, euros, or other currencies of nations that are part of the western alliance—something many countries will not do at this time.
Meanwhile, China is unlikely to have large amounts of industrial supplies to spare for Russia; China is intent on shoring up its own manufacturing industry and continuing to strengthen its export industry to grow its economy.
The question on The Street is whether or not Russia will be able to withstand economic isolation for a long period of time, and what will the impact of these sanctions and mandates have on the rest of the world… as evidenced by skyrocketing commodity prices.
Taking to the Streets
Since the invasion began, anti-war protests have erupted in some 65 cities across Russia and nearly 5,000 people who participated in the anti-war rallies have been arrested, according to OVD-Info, a human-rights organization. Videos emerged on social media that claimed to show Russian police beating up some protesters.
TREND FORECAST: Should economic conditions dramatically deteriorate and Russia become involved in military actions beyond Ukraine, not only will the anti-war protests continue, but they will encompass even more people as food becomes unaffordable and the money worthless, tapping into the “New World Disorder” trend that we have been highlighting for more than two years.
Up until today, Western bans have not included Russia’s oil and gas sales, which earned about $235 billion last year. President Joe Biden announced that Washington will ban imports of Russian oil, gas, and energy, which is a major escalation in the U.S. response to Moscow’s invasion of Ukraine.
“That means Russian oil will no longer be acceptable at U.S. ports and the American people will deal another powerful blow to Putin’s war machine,” the president said.
TREND FORECAST: While President Biden bragged that the sanctions mean “Russian oil will no longer be acceptable at U.S. ports and the American people will deal another powerful blow to Putin’s war machine,” he did not mention that it is also dealing a powerful blow to the American people. The price for premium gas at a Los Angeles gas station hit $7.29 a gallon while regular-grade gas across the U.S. hit $4.17 per gallon.
Again, as we continue to note, the general public is only getting a one-sided view of the sanctions and mandates imposed against Russia, which we forecast will do nothing to alter Moscow’s military posture, but will cause great hardship for the people of the world.
Bottom Line
The oil industry has backed away from buying and shipping Russian petroleum products in a war zone, and last week, Russian oil was being offered at discounts of as much as $18 a barrel below world prices.
While some analysts claimed the market for Russian oil is essentially dead, and they won’t buy Russian oil, regardless of the price, that may be more talk than action should a shortage of petroleum persist.
TREND FORECAST: The relationship between Russia and China will grow stronger as the West ramps up its economic war against Russia and intensifies it militarily by sending more troops and munitions to NATO nations next to and near Russia’s borders.
China, with an economy 10 times the size of Russia, and Russia being the 11th largest economy in the world, will be a significant and growing trading partner during Russia’s isolation, selling it more of its goods and services that the West has abandoned.
However, China will not short-change its own industrial complex to provide Russia with computer chips and other crucial supplies. China needs those items to feed its dominant export economy as well as to spark domestic consumption.
As we have long said, the business of China is business, while the business of the U.S.—and now of Russia—has been geopolitical conflict and gamesmanship.
COMMODITY PRICES SHOW BIGGEST WEEKLY RISE SINCE 1974
The fallout from Russia’s war in Ukraine has spiked global commodity prices at the fastest pace since 1974, during OPEC’s first oil embargo.
Sanctions against Russia and combat in Ukraine have closed off key sources of foods, metals, and other raw materials of which the region is a major supplier.
The S&P GSCI index of raw materials prices rocketed up 16 percent last week, its biggest weekly leap since 1970, according to data service Refinitiv, lofting it to its highest value since 2008.
Bloomberg’s commodity index has gained about 30 percent so far this year.
Russia and Ukraine together ship about a third of the world’s wheat exports. Futures prices for the grain leaped the daily limit on Chicago’s commodities exchange for the fifth day in a row on Friday, closing the week at $13.40 a bushel, a price not seen since 2008, and edging past that to $13.48 on 7 March.
Wheat’s price has risen more than 50 percent since the war in Ukraine began. Indeed, as we have continued to note, the sanctions being imposed upon Russia are being felt around the world as evidenced by the skyrocketing prices across the global grain market.
Copper approached its all-time high price last week and closed on 7 March at $9,420 a ton as stockpiles shrank to their lowest levels since 2005; aluminum, which needs large amount of energy to produce, set a record price of $3,850 a ton on the London Metal Exchange on 4 March and held it on 7 March.
Zinc futures prices topped $4,050 a ton on 7 March and ; on 3 March, nickel closed at $27,390, its highest in 11 years, and jumped to $29,775 four days later.
Iron ore futures on Singapore’s exchange leaped up 15 percent last week.
Shipping lines are refusing to load cargoes from Russia or travel the war-torn Black Sea, where some vessels already have been struck by missiles; banks and insurance companies increasingly are abiding by sanctions and refuse to be involved in transactions involving Russian materials.
The price of thermal coal in Europe, used by power plants, set a record of $430 a ton on 7 March. U.S. gas futures climbed more than 4 percent, their third weekly gain, as European demand rose for liquefied natural gas.
“We’ve never seen such steep and sudden commodity price spikes across so many assets,” analyst Henning Gloystein at Eurasia Group told Bloomberg.
“Until there’s significant de-escalation, the record or elevated prices due to sanctions and disrupted supply chains will continue for many commodities,” he said.
Soaring commodity prices “will stoke a torrent of inflationary pressures as the building blocks of the global economy get even more expensive,” Ehsan Khoman, MUFG’s research chief for emerging markets, told the Financial Times.
“We believe commodities are now marching to levels where demand destruction”—crashing demand due to unaffordable prices—“will become prevalent,” he said.
TREND FORECAST: As we have noted since the sanctions and other economic measures were taken against Russia by the U.S. and NATO, the restrictions on Russian exports will hurt Russian citizens and working people across the globe more than they will damage Russia’s political, economic, and military elite.
Beyond just the sanctions, other restrictions have blocked Russia’s goods from the global market.
One is the refusal of shipping companies and insurers to try to safely move goods out of a war zone. Merchant ships in the Black Sea have been struck by missiles; insurance companies increasingly are loath to guarantee shipments will arrive intact.
The other is public opinion. If a company is perceived as being on the wrong side of an issue—in this case, seen as supporting Russia or war profiteering—their supposed transgressions will be beamed around the world through social media in moments.
Having seen cautionary examples such as Dell Computers’ “Dell Hell” and the Amy’s Baking Company disaster, companies will not risk any misstep that could result in a reputational stain that would live on the Internet forever.
TREND FORECAST: Runaway inflation already was steering the world economy toward recession before the war began. Central banks, always cautious, will not raise interest rates fast enough to tackle the additional surge of price increases the war has set off.
At some point, prices will become high enough to exceed the budgets of large numbers of consumers. When that point is reached, markets for everything from houses to gadgets will contract dramatically and the global economy will fall into at least a recession and more likely Dragflation, a Top 2022 Trend, in which prices are rising while economies are shrinking.
WORLD’S CONSUMERS TO FEEL WAR COST IN HIGHER FOOD BILLS
The war in Ukraine has sent global food prices skyrocketing.
Among the factors driving up prices is that the war is raging in a region, which is known as the breadbasket of Europe.
Together, Russia and Ukraine supply a third of the world’s wheat exports, a quarter of its barley, and almost 80 percent of its sunflower oil, according to the International Food Policy Research Institute. They also supply more than 6 percent of Europe’s food imports.
The global price of vegetable oils, of which Ukraine produces a major share, already had reached record levels before the war began.
“It’s just tragic to see hunger raising its head in what has long been the breadbasket of Europe,” David Beasley, executive director of the UN’s World Food Program, said in a statement.
“The bullets and bombs in Ukraine could take the global hunger crisis to levels beyond anything we’ve seen before,” he warned.
The longer the war continues, the greater the risk that Ukraine’s winter wheat crop will not be harvested or that this spring’s maize and other crops cannot be planted.
About 80 percent of Ukraine’s latest wheat crop already had been exported before Russia attacked, but the Ukrainian port cities of Kherson and Mariupol now have been occupied by Russians, leaving future exports in doubt.
The world’s ratio of grains in storage to grains being used fell from 31.9 percent four years ago to 28.7 now, the United Nations Food and Agriculture Organization reported.
Wheat’s inflating price is driving up demand for substitute grains; corn prices have jumped 10 percent since Russia’s invasion began, Commerzbank noted.
Poor countries already are feeling the war’s impact on prices.
Turkey, one of Russia’s major wheat customers, has cut its global import target from 370,000 tons to 285,000 due to wheat’s soaring cost.
Inflation in Turkey ran at almost 55 percent, as we report in “Turkey’s Inflation Rate Tops 54 Percent” in this issue.
While the United States and European allies are exploring banning imports of Russian oil, as we go to press, they have not been imposed. Any such embargo would crimp the fertilizer industry, which is likely to indirectly contribute to higher food costs. Belarus and Russia also export fertilizer, a source now closed to most of the world’s farmers.
Poor countries, already struggling to recover from the COVID War and its costs, will feel food’s rising costs the most, curtailing imports and worsening the nations’ debt and balance of payments crises.
TRENDPOST: Food inflation was rampant before Russia’s Ukraine war began, as we have reported in articles such as “Ag Products Beginning Mini-Supercycle, Executives Say” (22 Jun 2021) and “Groceries: Prices Climbing as Supplies Disappear” (12 Oct 2021).
Eating Less Costs More
The UN Food and Agriculture Organization’s [FAO’s] food price index rose 20.7 percent in February, year over year, the agency reported on 4 March, indicating factors other than the current war were driving prices higher.
“A much bigger push for food price inflation comes from outside food production, particularly [from] energy, fertilizer, and feed,” FAO economist Upali Aratchilage said to Reuters.
“All these factors tend to squeeze profit margins of food producers,” leaving them with less money to invest in expanding production, he said.
TREND FORECAST: The U.S. has little direct reliance on food exports from Russia and Ukraine but still will feel the shortage’s effects as global food costs rise. As a result of Western sanctions many poor nations, mostly in Africa and the Middle East, will face severe food shortages by the end of this year.
WILL RUSSIA’S ECONOMY SINK INTO DEPRESSION?
Western sanctions will shrink Russia’s economy by 35 percent in this year’s second quarter and 7 percent for the full year, analysts at JPMorgan Chase predict, a near-collapse comparable to those in 1998 after Russia defaulted on its debts, when the country’s GDP withered by 5.3 percent.
Bloomberg sees Russia’s economy contracting by 9 percent this year.
“Sanctions and decisions of foreign businesses to pause or halt Russian operations have led to a stall in [Russia’s] international trade, reduced output, and supply-chain disruptions,” analyst Anatoliy Shal wrote in a note to clients.
“The shock implies a lower potential output, which will be accompanied with a spike in prices—a credit crunch will add to pain, although there are signs that the run on banks is easing,” he noted.
After NATO put up sanctions on Russian finance, trade, and travel, Russia tried to defend its economy by slapping on capital controls and doubling interest rates, among other steps that may help in the short term but that also will cripple economic growth.
“Sanctions undermine the two pillars promoting stability—the ‘fortress’ foreign-currency reserves of the central bank and Russia’s current account surplus,” JPMorgan analysts wrote.
“The sanctions will hit their mark on the Russian economy, which now looks headed for a deep recession,” they predicted.
“It is the long-term that is more troubling,” strategist Tim Graf at State Street Global Markets said to Bloomberg.
“The longer that sanctions are upheld, and especially if they are expanded to include gas and oil exports, the more likely Russia is to become an untouchable capital market for years to come,” he added.
Western allies have not yet sanctioned Russia’s roughly eight million barrels a day of crude oil and petroleum products, which are the nation’s chief source of hard currency, but today, the Biden administration implemented a ban on Russia’s petroleum products.
However, although the western alliance has not embargoed Russian oil and gas, traders, shippers, and insurers have backed away from those products, creating a de facto ban, as we report in “Allies Debate Ban on Russian Oil While Markets Already Avoid It” in this issue.
If Russia loses oil and gas revenue, its largest source of hard currency, its economy will shrink 14 percent this year, according to calculations by Bloomberg Economics.
WESTERN CORPORATIONS FLEE RUSSIA. DOES IT MAKE DOLLARS AND SENSE?
Despite decades-long political disagreements between Moscow and Washington, Russians have had a long love affair with things Western, from Levi’s jeans to McDonald’s fast food. Mikhail Gorbachev, former president of the Soviet Union, once appeared in a Pizza Hut commercial.
“It was a new smell, a new sensation, fast service, everything was clean,” Vladislav Zubok, professor Russian history at the London School of Economics, told the Financial Times.
“Moscow was incredibly colorless [in Soviet times] and you suddenly had light, color, and efficiency in the midst of the collapsing Soviet economy,” he said.
Now it is that triumph of what was called “diplomatic capitalism” that has collapsed.
BP is dumping its 20-percent stake in Rosneft, Russia’s biggest oil company. ExxonMobil is pulling out of the vast Sakhalin Island development, of which it owns 30 percent.
Royal Dutch Shell is exiting its Russian projects and is seeking to extricate itself from its 10-percent stake in the recently-completed Nord Stream 2 pipeline to carry Russian gas to Europe.
Germany suspended the pipeline’s operating certification when Russia invaded Ukraine.
Google and Facebook have shut off their services there. Clothiers H&M and Nike are winding down operations in Russia.
Microsoft is “horrified, angered, and saddened” by the war and will stop selling its products in Russia. Microsoft’s Windows operating system powers 55 percent of Russia’s computers, according to data service Stat-Counter.
Microsoft acted a day after software heavyweights Cisco and Oracle suspended their Russian operations.
Apple is suspending sales in Russia.
Apple, Facebook, TikTok, Twitter, and Youtube all have booted government-controlled Russia Today and Sputnik media outlets from their platforms.
Facebook, Twitter and Youtube are labeling posts from Russian government and government-backed sources and have eliminated their ability to earn money from ads and clicks.
Most western vehicle makers have announced full or partial shutdowns or withdrawals.
BMW, Ford, and Renault have closed plants; Porsche has shut down manufacturing due to a lack of parts coming from Ukraine.
The lack of auto parts made in Ukraine also is curtailing production at some BMW and Volkswagen assembly plants in Germany and the U.K., the FT reported.
Aston Martin, Bentley, Honda, Jaguar, Rolls-Royce, Toyota, and Volkswagen have ceased manufacturing in Russia.
Volvo has halted production at its Russian truck plant and suspended car deliveries in Russia “until further notice.”
Honda already had announced in December that it will leave the Russian vehicle market this year.
Other western countries withdrawing from Russia:
- Visa and Mastercard have announced an end to services in Russia, beginning this week.
- Siemens, Germany’s third-largest publicly-traded company, has “put all business in and international deliveries to Russia on hold,” the technology giant announced. The company has a €1.1-billion contract with Russia to build high-speed trains.
- Daimler Truck, the world’s largest truck builder, is halting its partnership with Russian maker Kamaz and has decided to “immediately suspend all our business activities in Russia.” Mercedes-Benz owns 15 percent of Kamaz and is considering divesting, Mercedes said.
- Equinor, a Norwegian energy development company, is ending its Russian partnerships.
On 1 March, Grant Thornton became the first major business services firm to break with its Russian member company. Bain and Co., Boston Consulting Group, and McKinsey & Co. have announced they will refuse work from Russian government agencies but have not stopped servicing state-owned and other companies.
The head of McKinsey’s Ukraine office called on the company to shut down its Russia operations and a former senior partner in Russia told McKinsey managing partner Bob Sternfels in a tweet to close the company’s Moscow office and that “it’s blood money on your hands, staining you with each day you keep it open.”
McKinsey counts 21 of Russia’s 30 biggest companies among its clients.
The “Big Four” international accounting firms Deloitte, EY, KPMG, and PwC have not announced any change in their Russian operations. Unlike business service firms, global accounting firms are networks of affiliated businesses. Cutting out one of those affiliates can be a long and intricate process.
Several large Western public relations firms, including FTI Consulting in the U.S. and London-based Hudson Sandler, have dropped Russian clients to avoid being forced to polish the reputations of businesses with ties to the Kremlin or its allied oligarchs, the Financial Times noted.
The companies “don’t know if we can get paid and what work we could even do for them,” one PR executive told the FT.
Coca-Cola, Pepsico, and McDonald’s are among the Western icons that would be missed if they shut down operations, according to a Russian poll taken last week. Today, Coca-Cola, PepsiCo, and McDonald’s announced that they were suspending business in Russia.
TREND FORECAST: Karl Marx, godfather of the failed Soviet Union, proclaimed the doctrine of “economic determinism:” the idea that economic relationships are the basis of a society and its politics.
Russia’s invasion of Ukraine will not fail because of internal or external social or political opposition, and we forecast, while it will drive Russia’s economy down considering their natural and human resources, they will trend more toward a self-sufficient economy, one of our Top Trends for 2022.
Moreover, the business they lose with the West will be targeted toward the East—such as China and India—and Africa.
Among the big losers are the businesses whose incomes will decline because they are abandoning Russia—the 11th largest economy in the world, and the Russian employees who had those jobs.
WESTERN COMPANIES’ RUSSIAN DILEMMA: STAY OR GO?
The distributor of Apple products in Russia saw a run on its stores, with people grabbing iPhones and Macbooks before rubles lost even more value and while the products were still available.
“This is a new kind of war, where soldiers are posting TikToks from the battle front and Google Maps is being used to identify where the tanks are,” Nathan Freitas, founder of the Guardian Project, a group of software and digital activists supporting human rights.
“You don’t want these things designed to serve people to be turned into weapons,” he said, nor do companies want to be perceived as siding with Russia against the Western alliance.
However, blocking Russian consumers’ access to technology “would be punishing the average citizen for actions taken by [their] government,” Joshua Brockwell, a director at Azzad Asset Management, contended in a Financial Times interview.
“If you applied that standard to other countries and governments around the world, you would have complete chaos,” he said.
For example, if a company establishes a moral precedent of turning its back on Russia, which accounts for about 2 percent of Western companies’ sales, would the same company then be obligated to close itself to China’s enormous market if China uses military force to annex Taiwan—and sustain enormous financial damage as a result? How would shareholders react?
The trend toward “CEO activism,” in which corporations take, and act on, political stands could, in this case, “punish the Russian people” more than government officials.
TREND FORECAST: In most cases, companies are exiting Russia as a matter of public relations, principle, and government pressure. In an age when a company’s decision can displease a segment of the public, any such complaint can be magnified around the world in moments over social media. No business wants to risk being flogged in the court of public opinion or to have to try to repair that kind of damage to its reputation.
ALLIES DEBATE BAN ON RUSSIAN OIL WHILE MARKETS ALREADY AVOID IT
Canada, which buys a tiny amount of Russian oil, has blocked imports of Russia’s oil. And today, President Joe Biden announced a ban on Russian petroleum products.
About 8 percent of U.S. oil and petroleum imports are from Russia, amounting to 245 million barrels or about 672,000 petroleum products a day. Oil and gas are the lifeblood of Russia’s economy, which is about the size of Italy’s and depends almost entirely on exporting raw materials.
Russia ships about 5 million barrels of oil a day, half going to Russia, and roughly 2.7 million barrels of refined petroleum products.
The $235 billion Russia earned last year exporting petroleum products accounted for about half of its export revenue, according to the Institute of International Finance, and was its largest single source of hard currency.
Until they find other customers, banning those exports will inflict even greater damage on Russia’s crashing economy. And only half of Russia’s loss of Western revenue from oil and gas sales would be made up by the $118 billion in new sales to China that Russia announced at last month’s Olympics.
On the other hand, the world faces an oil and gas shortage already in place before Russia’s war began.
When NATO cast Russia out of the world’s financial system and sanctioned several of its banks, the allies specifically excluded the country’s institutions necessary to keep oil and gas flowing.
It did so, in part, because Russia provides Europe with 40 percent of its natural gas, which is still flowing under long-term contracts with Gazprom, Russia’s main gas company.
There are not enough sources that can replace the supply in the short term.
Italy also receives at least 40 percent of its natural gas from Russia and was perceived by NATO allies as the country most likely to “go soft” on sanctioning its provider.
It did not.
“In the case of interruptions of gas supplies from Russia, Italy has more to lose compared to other European countries that rely on different sources,” Prime Minister Mario Draghi said in a 3 March speech to the country’s parliament. “This does not diminish our determination to support sanctions that we deem justified and necessary.”
The invasion is “a turning point in European history,” Draghi declared, that has shattered “the illusion of permanent peace through economic and political integration” and has created “a new reality” for the region.
Draghi also said Italy is sending military aid to Ukraine because “it’s not possible to respond [to the crisis] only with encouragement.”
However, “sanctions should hit those who started and are conducting the war, not poor people in Russia and even in Italy,” opposition party leader Matteo Salvini, an avid Putin fan, said in a 27 February interview on Italian television.
Although Western allies have yet sanctioned Russia’s oil and gas exports, traders are behaving almost as if they have: as crude oil prices have spiked from $92 to $129 per barrel since Russia invaded Ukraine.
Also, refiners in Japan, South Korea, and other nations have cut back purchases of Russia’s oil, many shipping companies are refusing to load it, and insurance premiums on any such shipments have spiked on Russian oil being shipped.
Because of financial constraints and global opposition to Russia’s war, about 70 percent of Russian crude exports “can’t be touched,” research director Amrita Sen at the consulting firm Energy Aspects told CNBC.
The Indian Oil Corp. has ended purchases of two grades of Russian crude and will buy others only if the price includes delivery to India, the company said. Normally, buyers arrange and insure their own shipments.
Rosneft, Russia’s largest oil company, is offering to deliver crude shipments in government-owned tankers in exchange for cash on delivery, the WSJ said, but so far has found no takers.
Russia provides about 7.5 percent of the world’s oil flow and 40 percent of Europe’s natural gas.
TRENDPOST: Not only are the sales of Russian oil declining, so, too, is the price of Russian oil. A reporter for Bloomberg tweeted that Russian Urals crude was selling for $28.5-a-barrel today, while Brent crude was selling for $129 per barrel on the open market.
U.S., ALLIES CUT OFF CHIP SUPPLIES TO RUSSIA
Export controls imposed by the U.S. government and its NATO allies on Russia will deny Western-made semiconductors to that nation’s industries and military.
The “novel and complex” set of export controls have been designed to cripple Russia’s military and industrial electronic capabilities while minimizing impacts on consumers, Kevin Wolf, a former senior commerce department official, told the Financial Times.
“The [U.S.] administration has set out a structure to cut Russia off from chips and this isn’t going to go away,” he said. “There is massive allied cooperation on this.”
U.S. makers Nvidia and Intel, ranked as the world’s largest chip maker by 2020 revenues, have pledged to comply; so has Taiwan Semiconductor Manufacturing Co., which controls about half the world’s chip market, according to The Wall Street Journal.
The controls on chip exports are modeled on those the U.S. imposed on Chinese tech giant Huawei, which the Trump administration blacklisted over the company’s ties to the Chinese government.
“Russia is very well prepared but, over time, this is going to degrade their military capabilities severely,” former U.S. treasury officer Julia Friedlander commented to the WSJ.
However, the vacuum created by the absence of Western-made chips opens the door to China’s tech industry to fill the void – specifically by Huawei, the company the U.S. sought to weaken.
“Huawei could monopolize the Russian telecom equipment market,” Artyom Lukin, a professor at Russia’s Far Eastern Federal University, pointed out in a WSJ interview.
“As a result of Western sanctions, China could gain 100 percent control over our country’s tech supplies,” he added.
That concern is overblown, according to an unnamed White House official who spoke to the WSJ. “China alone cannot supply all of Russia’s critical [chip] needs for the military,” the official said, pointing out that China now accounts for just 16 percent of the world’s semiconductor supplies.
“China certainly cannot compensate Russia for everything we’re restricting through these rules,” the official added.
“Even China, with its thriving technology ecosystem and immense government subsidies, has failed to produce advanced chips,” Martin Chorzempa at the Peterson Institute for International Economics, said to the WSJ.
“It’s unimaginable that Russia would be capable of doing so,” he added.
TREND FORECAST: An absence of computer chips will have an impact on Russia’s war machine and general economy since they are essential for its aircraft, hypersonic weapons, and all high-tech needs and requirements.
While there is doubt being expressed in the major media, politicians, and “experts” that Russia will be unable to fill the U.S. and NATO chip void, we forecast they will be able to sustain combat operations and high-tech advancements since they most likely have prepared for such sanctions and are working to become chip-self-sufficient.
WAR ROILS GLOBAL SHIPPING
A.P. Moller-Maersk and Mediterranean Shipping Co., the world’s two biggest cargo container carriers, have halted services at Russian and Ukrainian ports.
Suspension of services to Russia complies with Western sanctions, while Ukrainian ports are now in combat zones. In some cases, ships in the Black Sea have been fired upon or detained by Russian forces.
On 28 February, the Millennial Spirit, carrying 600 tons of crude oil and diesel fuel, was struck by a missile and caught fire in the Black Sea.
More than 200 ships are waiting to navigate the Kerch Strait, which connects the small Sea of Azov on Ukraine’s shore with the larger Black Sea, which is a passage to the Mediterranean, according to Lloyd’s List Intelligence.
“No one saw this coming,” Slava Sorochan, an Odessa-based executive with Stark Shipping, said to The Wall Street Journal. “That’s why so many vessels are stuck.”
Ship traffic across the Black Sea has plunged 62 percent since the war began; 22 ships left ports empty after being unable to load cargo, Mark Nugent, a broker at Braemar ACM Shipbroking, told the WSJ. However, the war’s impact on shipping ranges far more widely than the Black Sea.
The U.K. has closed its ports to all Russian vessels. Belgium, Germany, and the Netherlands have announced that all Russian-bound shipments will be held and inspected for military equipment.
“All those hubs in northern Europe are already pretty congested and every little thing that delays cargo flows will intensify the problem” of shipping delays around the world, Vincent Clerc, Maersk’s logistics chief, told the WSJ.
Daily freight rates have jumped even above their record levels that we reported in “Shipping Delays Helping to Inflate Prices” (25 May 2021), “Shipper Books Tenfold Increase in Net Profits” (21 Aug 2021), “Supply Chain Crisis Worsening” (9 Nov 2021).
Insurance premiums on shipments are up 4 percent since the invasion began, the WSJ said.
Although NATO and its allies have yet to ban Russian oil and gas exports, traders and shippers have enacted their own de facto ban.
“Tanker owners are reluctant to charter ships to buyers of Russian crude,” Peter Sand, chief analyst at consulting firm Xeneta, said in a WSJ interview.
“Very few ships are picking up Russian crude and that has significantly pushed up freight rates” for those shipments, he added.
TREND FORECAST: Prior to the Ukraine War, it was the COVID WAR which began over two years ago. During that time, as much of the world sheltered in place and locked down, supply chain disruptions were one of the major elements that pushed inflation higher: demand outstripped supply.
Now, with the numerous sanctions, restrictions, port closures, and sea travel restrictions, there will be new supply chain disruptions that will push inflation even higher. And, as we note, it will do very little, if nothing, to affect Russia’s military capabilities now or in the future.
RUSSIA’S ELITES STORE THEIR WEALTH IN LUXURY ITEMS
As Russia’s ruble crashed and the country’s stock markets shut down, rich Russians stashed their wealth in jewelry and high-priced watches, according to Bloomberg.
Bulgari, the Italian purveyor of jewelry, watches, perfumes, and other finery, reported rising sales in its Russian stores in the days following the Ukrainian war.
“In the short term, it has probably boosted the business,” Bulgari CEO Jean-Christophe Babin said in a Bloomberg interview.
“How long it will last is difficult to say, because with the SWIFT measures fully implemented [which ban many Russian financial institutions from the global banking network] , it might make it difficult, if not impossible, to export to Russia,” he said.
Cartier and Rolex are still doing business in Russia, as is Swatch Group with its Omega watches.
“We are there for the Russian people and not for the political world,” Babin said. “We operate in many different countries that have periods of uncertainty and tensions.”
Popular watches can sell in secondary markets for multiples of their original retail price, Bloomberg said, making them a good wartime investment.
TRENDPOST: Name the country, name the place, it’s the same story everywhere: the rich get richer, the poor get poorer, and life goes on for them essentially unaffected. And when times get too tough, and the nations they live in get too dangerous, they exit to global hotspots they most desire.