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As the Russian invasion of Ukraine continues, EU industries are put to the test.

A range of industries across Europe have issued stark warnings about supply chain shortages, production shutdowns, price hikes, and even corporate failure less than two months after Russia invaded Ukraine.

Despite the European Union's inability to agree on a ban on Russian crude oil, fuel prices have already reached new highs across the continent. Germany imports 55 percent of its gas from Russia, the most of any EU member state in terms of volume. Although supply is currently stable, the country is concerned that if the war—and sanctions—continue, many manufacturing businesses will go out of business, particularly if multinationals such as Thyssenkrupp, BASF, and Bayer slow or stop production in certain operations.

According to S&P Global, a ratings agency, European auto production is expected to be severely disrupted. Since Russia's invasion of Ukraine, automakers such as Volkswagen and BMW have been among the hardest hit. The war, and the resulting disruption in parts supply, has put Volkswagen's 2022 outlook in jeopardy, according to CEO Herbert Diess. In response to supply chain disruptions caused by the war, the company has moved some of its production to North America and China.

Many businesses are already questioning whether sanctions will hurt Germany more than Russia just seven weeks into the war. VCI, Germany's main chemical industry association, warned at the end of March that if Russia continues to insist on paying for natural gas in rubles, which is currently a violation of sanctions laws, chemical plants in the country will likely close, possibly for months.

Indeed, the government has been forced to ask German households to turn down the thermostat in order to conserve current gas reserves and find new supplies, a measure dubbed "freezing for Ukraine."

On March 30, the country's economics minister, Robert Habeck, launched the first phase of a three-tier emergency plan to prioritize where gas supplies should go if Russia cuts off the supply. Hospitals and private residences would be at the top of the list. According to the plan, industry, which consumes a quarter of Germany's total gas, would be the first to shut down unless companies can demonstrate how "system relevant" they are.

The Federal Network Agency, which regulates access to gas, electricity, and other services, has sent a questionnaire to all German businesses, requesting that they detail their individual arguments for a right to gas.

While the focus has been on oil and gas, many European heavy goods manufacturers, particularly automakers, rely on a consistent supply of other Russian exports. Raw materials such as nickel, which is used to make lithium-ion batteries for electric vehicles, and palladium, which is used to make catalytic converters, are two examples.

Neon gas production, which is essential for semiconductor manufacturing, could also suffer as a result of the fact that a handful of Ukrainian companies produce more than half of the world's neon. This would occur at a time when businesses are already experiencing global chip shortages.

Food price increases, which have been on the rise since the start of the Covid-19 pandemic, are likely to continue. The "breadbasket of Europe," Russia and Ukraine, are among the world's top producers and exporters of wheat, barley, corn, and vegetable oils. Russia is also a major fertilizer producer.

According to research conducted by the Dutch bank Rabobank, 62 percent of Ukraine's corn fields are located in "at risk" war zones, putting European supplies—including animal feed—at risk. Wheat stocks, according to the bank, are at their lowest level since 2006-07.

While the European Union is largely food self-sufficient, the European Commission stated that there is no realistic way to replace imports of sunflower oil, which will have a negative impact on producers of processed foods such as margarine, biscuits, and canned fish.

Even shipping goods across the Black Sea is becoming prohibitively expensive for shipping companies.

According to Bloomberg, increases in war-risk premiums of up to 10% of a vessel's value for cargo ships and tankers traveling the Black Sea have made ships nearly uninsurable due to the increased risk of damage from mines and missile attacks. For a standard tanker worth $50 million, the additional insurance cost would be about $5 million, which is 30% more than the cost of hiring the ocean carrier itself.

The European Commission has been forced to relax competition rules in order to protect businesses and maintain supplies as a result of the crisis. It adopted a "temporary crisis framework" on March 23 to allow member states to use state aid rules to help their economies.

The new framework will allow member states to provide limited aid to businesses affected by the war or related sanctions and countersanctions; ensure that businesses have sufficient liquidity; and compensate businesses for additional costs incurred due to unusually high gas and electricity prices (up to a maximum of 2 million euros, or $2.2 million, at any given time).

EU countries will also be able to set up programs to provide grants of up to €35,000 (US $38,000) to companies in the agriculture, fisheries, and aquaculture sectors, and up to €400,000 (US $433,000) to companies in all other sectors that are affected by the crisis.

Not every industry is heavily impacted. So far, the European banking sector has remained one of the few industries that has escaped the brunt of the crisis.

The European Banking Authority's latest risk dashboard, released on April 1, found that direct exposures to Russia and Ukraine are small (less than 0.3 percent of total assets) and concentrated among a few banks. As a result, "first-round" consequences should be manageable. Even banks in the most vulnerable countries, such as Austria and Hungary, claim that the war has affected less than 3% of total assets.



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