Flint Opinions: What the Ukraine crisis means for business 

We asked some of Flint’s experts for their take on the wider and longer-term impacts of the Ukraine crisis. 

On energy: Josh Buckland, former adviser to the Secretary of State for Business, Energy and Industrial Strategy 

Russia’s invasion of Ukraine had an immediate impact on energy prices and security, spurring Western countries to cut or reduce their reliance on Russian gas. This has long-term implications for the energy sector. Nations are scrambling to enter new energy supply contracts - redrawing the global energy map and raising questions about wider decarbonisation and energy security goals.  

Global energy flows are already shifting. The UK is focusing on homegrown energy options and new deals in the Gulf. Russia is turning East to find new markets (providing China with significant leverage). Others across Europe are looking at alternative sources, but are more cautious on the ability to swiftly get off Russia's gas. The recent agreement that the US will provide more gas to the EU is evidence of a changing global energy map taking shape. Despite rhetoric around new oil exploration and fracking, the longer–term global response to energy security concerns is still likely to favour low carbon technologies and accelerate the development of new wind and solar capacity.  

On freight: Meera Vadher, former Special Adviser to the Transport Secretary 

Freight-related sanctions from the West continue to bite Russia, with large portions of airspace closed to Russian aircraft and UK ports closed to Russian vessels. Commercial freight options are also severely affected by rising fuel prices and financial sanctions, which make it very challenging to move goods in and out of Russia.  

Global shipping companies are going beyond international sanctions, voluntarily cancelling or amending their services into Russia (and Ukraine). The impact of sanctions, war and freight suspensions will lead to ships being diverted and delayed, further disrupting global supply chains. EU customs authorities are already banning ships carrying Russia-bound goods and are considering replicating the UK’s ban on all Russian vessels. These decisions, and the increasing diversion of ocean freight shipments, are and will continue to affect the supply of goods globally.  

Sam Lowe
On trade and commodities: Sam Lowe, trade specialist and former member of UK government’s Strategic Trade Advisory Group 

Overlapping financial sanctions, ambiguous export bans, freight restrictions and the volatility of the ruble make it incredibly difficult for any Western company to export to, or import from, Russia, even if they are technically still able to do so. Firms willing to navigate the sanctions and reputational risk could find themselves benefitting from discounted Russian commodities in the first instance and threatened with Western secondary sanctions in the next.  

Subsequent disruption to the supply of key commodities such as nickel, titanium, palladium, and key industrial gasses will exacerbate pre-existing global semiconductor shortages and stymie the development of electric vehicles. The collapse in Russian advanced manufacturing and weapons production will have second-order implications for the defence capabilities of countries such as India. We are only beginning to see the effects of the Ukraine crisis on global trade – companies that can identify and respond to risks within their supply chain will be best placed to navigate future trade uncertainty.  

Ian Wright
On agrifood: Ian Wright, co-chair of Food and Drink Sector Council, former CEO of Food and Drink Federation 

Russia and Ukraine account for 30% of global wheat exports and 75% of sunflower oil exports. With wheat already in short supply, export restrictions and general trade disruption resulting from the conflict will push up the global price of both, with knock on implications for the cost of other grains, beef, and dairy. Countries in the Middle East, particularly Egypt, Sudan and Tunisia, will be particularly badly hit, re-creating local conditions last seen during the Arab Spring.  

The expansion of trade sanctions has exacerbated an existing global fertiliser shortage, affecting markets in South America, Eastern Europe, China and India. The effects go beyond the immediate price issues, leading to lower crop yields, shortages of industrial grade CO2 and the need for government intervention. Further military action in Ukraine in the coming weeks will affect spring planting plans.  

On financial services and investment: Simon Horner, former innovation director, City of London Corporation 

Even if the conflict is resolved and sanctions are unwound, Russian debt will languish in junk territory for some time to come. It will continue to be excluded from major equity and bond indices, while both ratings and reputation will take time to recover. Opportunistic buyers will quickly return should sanctions be lifted, but assets connected to the Russian government, especially in commodities and financial services, will likely remain un-investable for the foreseeable future.  

Investors are now more likely to retrench from emerging markets. This is particularly significant for climate finance and could leave annual commitments in greater doubt and undermine COP legitimacy.  ESG has taken a beating, both in reputation and performance. Going forward, we are likely to see a more expansive definition of “E” with a more flexible approach to transition. There will be greater scrutiny of the country/region where fund assets are held for “S”, and more pressure on board composition, structure and transparency for “G”.  

Andrea Klaric
On tech and cyber: Andrea Klaric, former foreign affairs adviser to the Croatian President 

Europe moved swiftly to thwart Russian disinformation efforts: the EU banned Sputnik and Russia Today, and the latter has stopped broadcasting in the UK. We expect greater public awareness about disinformation to lead to renewed calls from politicians for the EU’s digital services act and UK’s online safety bill to include more stringent rules on legal but harmful content, and debates around must-carry obligations for content from state-backed media outlets.  

The crisis has placed enormous pressure on the tech sector to withdraw products and services from Russia. This is unavoidable in the short-term but will impede Russian civil society and limit ordinary Russians’ access to free and open information. Commercial boycotts combined with sanctions will accelerate Russia’s efforts to reduce its dependence on Western technology, potentially leading to the decoupling of supply chains and the trifurcation of the global internet. 

Katie Whitting
On China: Katie Whitting, former Australian diplomat and China expert 

China is treading a very fine line, with competing interests pulling it in different directions. China wants to avoid becoming involved in the crisis insofar as possible and doesn’t want to walk back from its so-called ‘no limits’ friendship with Russia, including because it provides a useful counterweight to the US. But at the same time, China wants to continue to participate in global markets.  

As part of this balancing act, China has largely refused to be drawn on the legitimacy of Russia’s actions and confirmed it will continue trading with Russia. But global markets, and the threat of secondary sanctions, means that China will fall into line with the West to some extent. Some Chinese banks have started to restrict Russian financing due to commercial concerns about losing access to the US-dollar clearing system. The fact that China has been so quick to distinguish between Ukraine and Taiwan reflects its long term priorities.  

On Geopolitics: François-Joseph Schichan, former French diplomat 

Russia’s invasion of Ukraine is a long-term crisis which will shape the international landscape, create new dynamics and accelerate some existing trends. The crisis highlights the relevance of the EU strategic autonomy agenda. As supply chains evolve with the impact of sanctions, there are spill-over effects on other regions, particularly in Asia, Africa and the Middle East. However, despite the US renewed involvement in Europe, the China-US relations will remain the major strategic question in the long-term. 

The deep and rapid geopolitical shifts we are witnessing are likely to have inescapable, long-lasting implications for businesses. As governments take decisions based on geopolitical factors rather than just economic rationality, businesses should prepare for a more uncertain and fragmented world. As well as reacting to current events, we need to start planning against a new set of long-term assumptions. 

Flint is offering bespoke company briefing sessions to help companies understand the short and long-term commercial implications of the Ukraine crisis and assisting companies in their strategic response.  

If you would like to discuss any of these issues further, please contact Flint here.  

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