Russia invades Ukraine and Vladimir Putin news

The coronavirus pandemic drove global supply chains to the breaking point, causing shortages and sending prices skyrocketing. Just as the pandemic has calmed down, Russia’s invasion of Ukraine threatens to further scramble fragile supply chains. 

Russia is a major producer of commodities, everything from oil and natural gas to palladium and wheat. Ukraine is also a major exporter of wheat as well as neon. The crisis is casting doubt on at least a chunk of those vital supplies.

Moody’s warned that the Russia-Ukraine crisis will “only exacerbate the situation for companies in many industries,” especially those reliant on energy resources. 

Europe, in particular, will feel the most pain from the energy price spike because it is dependent on Russia for natural gas. Oil prices have surged worldwide, driving up prices for gasoline and raising the cost outlook for airlines and industries like plastics that use petroleum. 

The Russia-Ukraine crisis could pile further pressure on the worldwide computer chip shortage, which began during Covid and has been at the heart of the spike in new and used car prices.

Moody’s pointed out that Russia supplies 40% of the world’s supply of palladium, a key resource used in the production of semiconductors. Moreover, Moody’s said Ukraine produces 70% of the world’s supply of neon, a gas used in making computer chips. 

“We can expect the global chip shortage to worsen should the military conflict persist,” Uy wrote. 

Neon prices skyrocketed during the 2014-2015 conflict in Ukraine. Even though chip-makers have stockpiled resources, Uy said that inventories can only last for so long.

“If a deal is not brokered in the coming months, expect the chip shortage to get worse,” Uy said, adding that this will pose significant risks to automakers, electronics companies, phone makers and other companies. 

The combination of high energy prices and more pressure on computer chip supply will complicate the inflation picture. Consumer prices soared in January at the fastest pace in nearly 40 years. Although many economists anticipated inflation would cool off significantly later this year, that is now in doubt.

“The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain,” Federal Reserve Chairman Jerome Powell told Congress on Wednesday. 

Beyond computer chips, Moody’s pointed out that the Russia-Ukraine crisis has the potential to raise costs in the transportation industry, the most energy-intense of all industries.