Manufacturing Supply Chains Already Seeing Effects of Sanctions on Russia

By Logan Wamsley

As the Russia’s invasion of Ukraine continues to intensify, the globe is intensifying the sanctions placed on Russia in response. And manufacturing supply chains are feeling the pressure.

As of this writing, the European Commission has prepared a new package of sanctions against Russia and Belarus that will ban three Belarusian banks from the international SWIFT banking system, as well as all additional oligarchs and Russian lawmakers to the growing EU blacklist, according to Reuters. Additionally, the package will ban exports from the EU of naval equipment and software, and will also provide countries guidance how to monitor cryptocurrencies to ensure Russia does not use them to circumvent EU sanctions.

It is on the U.S. front, however, where tensions are really heightening. On Tuesday, President Joe Biden announced a ban on Russian oil, as well as Russian natural gas and coal imports. This will be added to the list of sanctions the U.S. has already placed on Russia, including one targeting Russia’s central bank which freezes any U.S.-located assets.

“Today I am announcing the United States is targeting the main artery of Russia’s economy. We’re banning all imports of Russian oil and gas and energy,” said Biden from the White House. “That means Russian oil will no longer be acceptable at US ports and the American people will deal another powerful blow to Putin’s war machine.”

Although energy-based sanctions have long been discussed as the most effective measure against Russia, the current administration has to this point been wary to impose them due to the potential strain it may put on Americans, particularly at the gas pump. Because of this, the change in course of action comes as a surprise to many.

For manufacturing supply chains, the effects of these sanctions are already being seen — and in some cases they have been dramatic. Most recently, for example, the price of nickel more than doubled suddenly to over $100,000 per metric ton. For comparison, the previous record for nickel prices was $52,000 in 2017. The increase was so dramatic the London Metal Exchange suspended nickel trading for at least one day. Russia is a key producer and exporter of metals, and third-largest producer of nickel — a key ingredient in stainless steel and a major component in lithium-ion batteries.

According to The Business Standard, only 7% of the nickel supply goes toward battery makers currently, but this is widely expected to increase as auto manufacturers rapidly expand EV production. Automakers have already made moves to mitigate the losses, with companies such as Tesla making extra efforts to seek out alternative materials. In the short term, some analysts say that some manufactures may temporarily avoid the financial strain due to locked in prices in long-term supplier contracts. However, with no indication Russia will deescalated their military efforts any time soon, manufactures will find a need for alternative supply chain solutions that will preserve working capital and keep their budgets intact.