The war in Ukraine- III

Regarding metals, Ukraine is a considerable producer of titanium, manganese and iron ore in the international context. Such commodities are key components in the production of low-cost steel for specialized purposes, such as the mould industry. With pressure on export points by Russia, for example, Odesa (access to the Black Sea) and the accentuated destruction of productive structures; the lack of raw material and its price increase is a reality with short and medium-term consequences.

In terms of energy, both countries are strategically important to the European Union (EU). A recent study by Hermes, dated 28 March, illustrates that the energy bill of European families should increase between 20 and 30 billion euros. The assumptions of this forecast are: i) current oil and gas prices; and, ii) Russia halting oil and gas exports in response to international sanctions. This reality summarizes its representation of more than 10% on a global scale with regard to oil and gas.

With the current or similar scenario, current projections denote a continuity in the price range between 100-120 dollars/barrel; while the natural gas range is around 130-140 euros/MWh. This shock, and considering a decrease in the relative importance of energy, does not fail to translate an extra burden to companies; therefore, it is important not to ignore the recent but lasting behaviour of raw material prices.

Especially because countries like Germany, Poland and even France are extremely dependent on Russian natural gas. Hence the strategic agreement promoted by Angela Merkel for the construction of Nord Stream 2, a replica of the previous one, aimed to double the capacity to supply gas to Germany. The objective was the substitution effect in Germany’s energy transition period, ie, in the face of the closure of nuclear and coal plants. Putin, as a strategist, exploits this opportunity: i) creates extra money in Russian coffers; ii) decreases the income of Ukraine and Poland, since, unlike its predecessor, Nord Stream 1 does not use the geography of these countries; and, iii) makes the European Union even more dependent on the project and, inherently, on Russia. In view of the scenario, German Chancellor Olaf Scholz decided to postpone the opening of the gas pipeline indefinitely.

Finally, there is a pernicious effect on the technological world, as more than 100 multinational companies have subsidiaries in Ukraine and even more in Russia. This human resources and infrastructure relocation plan have a considerable impact on technology operations and any future expansion plans will require a reassessment.