The Russia-Ukraine conflict has brought tragic losses of life and destruction across Ukraine, with more than 2 million refugees streaming into neighbouring countries in just two weeks. As the heavy bombardment of Ukrainian cities and clashes continue, the rising death toll and unfolding humanitarian disaster are of paramount concern. The crisis is also causing political and economic disruptions across the world, with businesses navigating conflict- related risks to their people, assets, operations, and supply chains in the region and globally. Companies also are seeking legal advice on the possible impact of an evolving sanctions regime on their businesses. In terms of insurance, premium payments or claims transactions may be stopped, or there may be delays, while banks request further information before processing.

There are a number of impacts that can be potentially experienced by different companies which will be discussed Energy and Power Natural gas is considered to be much cleaner than many other energy sources. Consequently, European countries have become highly reliant on it as part of their energy transition. Significant volumes of gas are purchased from Russia. The current conflict has exposed this over reliance and will result in changes to the energy strategy of several countries. There will likely be new asset construction projects focused on renewable energy, pipelines, and liquefied natural gas (LNG) terminals, as well as the reopening of decommissioned thermal facilities. Countries switching from Russian gas, to say, US gas, are likely to experience a rise in energy costs, if only due to relative proximities.

As a consequence of these increases, companies in those geographies could be exposed to significant shifts in values, increased business interruption and contingent business interruption risks, and supply chain problems. Many countries, including the US and UK and regions such as the Middle East, Asia, and the Pacific are not reliant on Russia for oil or natural gas. However, the effect of European countries looking to purchase energy from alternate markets will increase the demand from the remaining non-Russian markets. Without a corresponding increase in supply, this is expected to increase energy prices. A legacy of the present conflict is likely to be a surge in investment in renewable energy sources, although for major economies a large commitment will be required to make a difference. There will also be a significant lag between project planning and energy generation; it is unlikely that any projects announced now will produce energy for several years. In addition, there is the challenge of getting both the raw inputs as well as specialist consultants, contractors, and skilled labor to build and operate plants.

Supply chains Russian ships have been banned from UK ports. The ban includes any vessels owned or operated by anyone connected to Russia and authorities will also gain new powers to detain Russian vessels. In the short-term, at least, it will be far from straightforward to work out which vessels are owned and operated by firms with Russian interests. For ship owners transporting goods to Russia, technical problems are emerging. Ship owners’ insurers may now no longer be able to offer the normal guarantees that port owners often require in the instance of damage to ports by ships. Insurers may not be able to transfer payouts to ports, particularly if they are part state-owned, due to sanctions. This may lead to vessel arrests. Shipping companies are also considering the long-term viability of their crews.

Out of two million crew worldwide, approximately 200,000 are Russian and 75,000 are Ukrainian. Many Ukrainian crew are leaving to be with their families and to fight in Ukraine. As many of these crew members hold the rank of officer, with responsibilities for navigation and supervision of the safe operation of ships, their absence will prove challenging for the industry. The conflict is leading to the displacement of ships into different parts of the world to avoid the conflict and transport alternative sources of commodities supplied by Russia and Ukraine. Unlike during the Ever Given blockage in 2021, supply chains are unlikely to be halted, but deliveries will be slowed.

In the longer term, a protracted conflict in Ukraine could have a profound effect on the commodity markets. As Russia and Ukraine produce 29% of the world’s wheat supply, 19% of corn, and 80% of sunflower oil exports, there is a potential for food stability issues for countries, including in Africa and the Middle East, which rely on imports of these commodities. Furthermore, Ukraine supplies a large proportion of neon gas used in the production of semiconductors and is also a significant producer of uranium, titanium, iron ore, steel, nickel, copper, palladium, platinum, and vanadium. Any business with suppliers, customers, or staff in Russia will need to consider the potential effect of sanctions on their business, and they are advised to seek legal advice as to any impact the bans may have. Companies are also advised to continue dialogue with trading partners and assess alternatives to traditional inputs and supplies from the region.

QUESTION 1 (25 Marks)

With reference to the case study provided, critically discuss the typology of risks and their impacts that businesses in Africa and the Middle East have been exposed to as a result of the ongoing conflict between Russia and Ukraine.

QUESTION 2 (25 Marks)

As highlighted in the case study Russian ships have been banned from UK ports. The ban includes any vessels owned or operated by anyone connected to Russia and authorities will also gain new powers to detain Russian vessels. It is evident that the use of economic sanctions by Europe and its allies against Russia has created an opportunity for businesses in other countries to enter the Russian market. Against this background, examine why some
businesses may be for and against entering the Russian market during this period. Substantiate your response with relevant content.

QUESTION 3 (25 Marks)

Many European and American businesses such as Visa, McDonald’s, Shell among many others have since pulled out of the Russian market citing various reasons. Considering this, critically discuss the benefits of conducting an extensive risk assessment before any organisation enters a new market.

QUESTION 4 (25 Marks)

“With the growth of conflicts across the globe risk management techniques have been prioritised and applied in the finance and energy sectors. For the finance sector the focus has been on operational risks, as well as market, credit, and other types of financial risks. It has been argued by various institutions that risk management only needs to be as sophisticated as the organization requires it to be in order to bring benefits.”

With reference to relevant examples critically discuss REFORM, CONFORM, PERFORM AND DEFORM as levels of risk management sophistication.

Answer rating: 100% (QA)

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