Procurement: Ukraine War Related Shortages


April 21, 2024: The Ukraine War created disruptive shortages worldwide. Russia, for example, now has a severe labor shortage. Because of the hundreds of thousands of Russian working age men killed or badly wounded in Ukraine, with at least as many being hidden from conscription by their employers, plus several million military age men who fled the country to avoid conscription, the pre-war labor shortage in Russia got much worse. Currently the Russian economy is short about 5 million workers. This is great for skilled workers because private and state owned firms offer high pay for qualified workers. Shortages of unskilled workers can be partially addressed by allowing more foreigners, mainly from Central Asia, to legally enter Russia and find jobs. Foreign workers already in Russia illegally are being hired and legalized, though they are often conscripted. Russia is burdened with many war-related sanctions but has found ways to deal with sanctions to lessen their impact. Russian conscription officials are thrilled by the higher bribes offered by desperate employers.

The Russian invasion of Ukraine disrupted Ukrainian agricultural exports. By the end of 2023 Ukrainian grain production was reduced by 29 percent. Because Ukraine is such a major grain exporter, with 90 percent of the exports traveling by ship, the reductions in grain exports were felt most in poor countries where the population depended on Ukrainian grain imports for much of their food.

To make matters worse, the Russian Black Sea Fleet blockaded Ukrainian grain shipments by sea. This lasted over a year before Ukrainian developed methods to destroy or disable enough Black Sea Fleet ships to force the Russians to move their remaining warships to ports on the eastern coast of the Black Sea that were far from the Ukrainian grain shipping lanes along the west coast of the Black Sea. Most of these routes travel through the coastal waters of NATO members. Russia does not want a war with NATO and, aside from a few unmoored Russian naval mines that drifted into those shipping lanes and were dealt with, most of the normal Ukrainian grain exports have been getting out since early 2023.

When the Russians invaded in early 2022 the fighting reduced farming activity and reduced the amount of grain available by 22 percent. When the invasion began, Ukraine had large stockpiles of grain, and this delayed the impact of shortages by about a year. During the last year some other shortages have appeared and will apparently continue as long as the Ukraine War does.

The main beneficiary of this is Russia, which has long been the largest exporter of grain, followed by Canada, the United States, France, and Ukraine. Western economic sanctions on Russia make allowances for its grain exports to continue. In turn, Russia has not made it a priority to halt Ukrainian grain exports. Russia tried and failed to do that and has not continued its efforts in that area.

In effect, there is something of a truce when it comes to grain exports. The main reason is that much of the Russian and Ukrainian grain exports, which are 30 percent of the world total, go to relatively poor countries that depend on these exports to keep their populations fed and peaceful. Food shortages in most countries means local unrest and political instability.

While the potential problems with Ukrainian grain exports was resolved, the fighting inside Ukraine has caused a lot of other problems. This is especially true as the Russians have switched their missile attacks to civilian infrastructure targets. That resulted in nearly 600 Ukrainian water supply facilities damaged recently. That left 36 percent of Ukrainians without consistent access to water supplies and sewage disposal services. The water supply and sewage disposal industry in Ukraine has suffered $11 billion worth of damage so far. Even before the Russian invasion, Ukraine did not allocate enough money to keep water and sewage facilities in top condition. There was a similar situation with electric power production. Russia deliberately attacked power plants and many parts of Ukraine lost their electrical power. Repairs were made and blackouts were not permanent but, in many regions, they continued to be intermittent. Because 82 percent of Ukrainians live in urban areas, Russia does not have to attack a large number of targets to have an impact. Russia is definitely trying to turn the lights out, cut off the water and halt sewage services in Ukraine.




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