Russia-Ukraine war ‘will have a reverberating impact across the supply chain’: Analyst

Kona Haque, ED&F Man head of research, joins Yahoo Finance Live to discuss President Biden's ban on Russian oil imports and global supply chains amid the Russia-Ukraine war.

Video transcript

BRAD SMITH: For more on this, we've got Kona Haque, who is the ED&F Man head of research. Great to have you here with us today, Kona. First and foremost, let's start things off with oil because that is what prompted the president of the United States, President Biden, to speak earlier this morning and address what the moves that the US would make in response to Russia's invasion of Ukraine would be, and specifically noting the impact that it would have economically here in the US, but especially at the pump for US consumers as well.

KONA HAQUE: I mean, basically the impact that this war is going to have across the global economy is going to happen via the commodity transmission. So Biden would have known about this when he put this embargo on. And this is not the first thing. Obviously, it was a sanctions. Then it was the economical choking of the Russian economy. And now it's the pressure points because, obviously, Russia relies heavily on oil and gas revenues and commodity revenues for its economy to thrive. This Ukraine war is not going to be cheap. They're going to have to fund this. So they need those revenues badly.

So if you're going to hurt it-- hurt them where it hurts, you know, that's clearly-- this is an obvious place to start. But as you mentioned, the USA alone really only imports about 8% of its crude oil needs from Russia. Of that, really 3% is crude oil, and the other 5% is oil products. It's not clear at this point whether the US are going to put an embargo on oil products. It's some products. It's crude oil and some products. And it's also on Russian tankers. So does that mean they can-- the oil can still come through other tankers? That's also not quite clear at this point.

So, you know, Russia will suffer, obviously, but they can try and obviously displace USA and move to China or India or other importing countries. And the USA, for that matter, they can supplement the shortfall that would have come from Russia easily from the Middle East. We know that they sent delegations out to the Middle East, even to the Venezuela. Obviously, Canada and Mexico are obvious choices, too.

BRAD SMITH: So to what extent, if any, do you expect this most recent ban that is now going to be implemented to show up in the supply chain?

KONA HAQUE: Yes, so I mean, it's going to happen for sure. So your already-- in your previous slot, you mentioned the gasoline price in the USA is now at multi-year highs. $4.20, $4.40 is a given. This whole supply chain is obviously going to have an impact-- inflationary impact within the US economy, but globally, oh, my gosh.

So it's freight. The cost of shipping everything is going to go through the roof, through the bunker fuel. Then you have oil as the mechanism to grow anything. So you've got fertilizers. Oil and gas are hugely important components for fertilizers. Those are in shortages. Again, Russia and Ukraine are big exporters of that part.

To run everything on the supply chain, unfortunately, so much of it relies on oil. It's the reason why every time you see oil prices go up by 50%, it typically follows-- a US recession typically follows. It's that impactful. It's that entrenched in the economy. And obviously, the US clearly, very, very energy dependent, although, I should say, not as intensive in terms of energy use as maybe 20 years ago. But no, it will have a reverberating impact across the supply chain.

BRAD SMITH: I want to also talk about wheat with the time that we have left. We were tracking wheat futures earlier today. And of course, that struck a limit down level. But that was, of course, after consecutive sessions, six consecutive sessions of gains. And with all of that in mind, just put this in context for us why the rise happened and why the pullback that we saw today was as fierce as it was.

KONA HAQUE: Yeah, no, these are markets like I've never seen before. Today's pullback was probably just a correction. I mean, it had overextended itself. Wheat prices rose by about 60% in the last 12 days-- unheard of, unprecedented. So we are now at near record highs. These kind of prices were last seen in 2008, which led to the Arab Spring and food riots. Huge amount of importing countries would suffer on the back of it. What led to it was obviously the fact that Russia and Ukraine are a powerhouse in terms of oil supply-- sorry, wheat supply. They account for 29% of global exports.

So this was-- the fact that this region is now potentially being choked off in terms of wheat exports couldn't have come at a worse time because wheat global inventories were already tight coming up to this point. You had droughts in Brazil. You've had droughts in USA and Canada, all major wheat exporting countries. And now you have another massive 29% of the world, which is potentially being choked off in terms of wheat exports. And the world can't handle it because let's face it, wheat demand is very inelastic. It's a food, it's a consumption. It's what everyone needs. So there wasn't any room for error.

BRAD SMITH: Kona Haque is the ED&F Man head of research joining us here today. Thank you so much for this historical context. Extremely important for the sake of this conversation and tracking all of these elements moving forward from here. Appreciate it.