The Economist - UK (2022-03-19)

The Economist March 19th 2022 55

Business

Businessandwar

Value-chain reaction

M

ost multinationalcompanies  can
live without Russian customers. Liv­
ing  without  Russian  commodities  would
be  much  harder.  On  March  15th  the  Euro­
pean  Commission  announced  new  eco­
nomic  constraints  on  Russia,  including  a
ban  on  exports  of  European  luxury  items
and  cars—the  definition  of  an  essential
good is, after all, in the eye of the oligarch.
But the announcement also included a ban
on  steel  products  from  Russia.  More  such
restrictions on Russian exports may come. 
Companies  are  struggling  to  contain
the  fallout  of  Russia’s  brutal  war  in  Uk­
raine.  The  first  response  of  those  with
business in Russia was to rush for the exit.
About  400  have  announced  their  with­
drawal from Russia, according to one tally,
cowed by legal and reputational risks. Ex­
ecutives now face a different, bigger chal­
lenge.  This  concerns  not  their  business
within  Russia  but  supply  chains  that  ex­
tend beyond it, and other knock­on effects.
As  the  war  continues,  it  is  creating  cor­
porate  winners  and  losers,  as  well  as  an
awful lot of volatility.

There  are  two  factors  that  make  the

shock  to  supply  chains  particularly  diffi­

cult  for  firms  to  manage.  The  first  is  the

breadth  of  commodities  produced  by  Uk­

raine  and  Russia.  The  two  countries  to­

gether supply 26% of the world’s exports of

wheat,  16%  of  corn,  30% of  barley  and

about 80% of sunflower oil and sunflower­

seed meal. Ukraine provides about half the

world’s  neon,  used  to  etch  microchips.

Russia  is  the  world’s  third­largest  oil  pro­

ducer,  second­largest  producer  of  gas  and

top exporter of nickel, used in car batteries,

and  palladium,  used  in  car­exhaust  sys­

tems,  not  to  mention  a  large  exporter  of

aluminium and iron. Even without formal

sanctions  on  most  of  Russia’s  commod­

ities, Western traders are increasingly try­

ing to avoid them, wary of legal risks.

The  second  complicating  factor  is  the

market’s  extraordinary  swings.  The  price

of  Brent  crude  surged  to  $128  a  barrel  on

March 8th, then dipped below $100 a week

later as China announced new covid­19 re­

strictions and investors anticipated the in­

terest­rate  increase  by  America’s  Federal

Reserve on March 16th. The London Metal

Exchange  halted  trading  of  nickel  on

March 8th after its price shot past a record

$100,000  a  tonne.  When  trading  resumed

on March 16th, a technical issue prompted

the  exchange  to  suspend  trading  once

more (see Finance & economics section).

The  overall  American  stockmarket  is

back roughly to where it was before the in­

vasion.  But  a  few  industries  benefit  from

the  turmoil,  from  armsmakers  to  cable

news and the lawyers who help firms com­

ply  with  sanctions  (see  subsequent  arti­

cles).  The  biggest  winners  are  commod­

ities  firms,  especially  outside  Russia  (see

chart on next page). 

A stockmarket index of American frack­

ers, which benefit from high oil prices and

European  demand  for  liquefied  natural

gas,  climbed  by  a  fifth  between  February

23rd and March 10th. It remains 9% above

its  pre­invasion  level,  despite  the  decline

N EW YORK
Russia’s invasion of Ukraine is creating corporate losers—and winners

→Alsointhissection

56 Wartimenews

57 Thesanctionsbusiness

57 Firms’Russiandilemmas

58 China’stechwhiplash

59 WeWorkonscreen

60 Bartleby:Inpraiseofloafing

62 Schumpeter: Leaving Silicon Valley