Global challenges in the international supply chain crisis and the escalation of global inflation

[17-07-2022 05:04 PM]

BY Mohammad Zaal Alkhrisat

The world, in a surprising exceptional circumstance at the end of 2021 and the beginning of 2022, began to suffer from economic crises that threaten the economic and food security of the world. The crisis of the international supply chain is escalating and with the search for costly alternatives in transportation according to geopolitics, the energy crisis strikes again between supporters and opponents in OPEC To increase production following economic interests and political and regional trends, the global inflation crisis is escalating and threatening the poor classes with a decrease in purchasing power.

And here we must clarify the three economic crises, which made the economic policies and tools of the International Monetary Fund and the World Bank to address crises all helpless and hostage to the security situation in the region and regional alliances.

Crisis One: The International Supply Chain Crisis

First: Since the outbreak of the Russian war on Ukraine... and the imposition of sanctions by the European Union countries in the siege of Russia... the problem of the supply chain began from the two sides of the conflict (Russia and Ukraine), and the beginning was the suspension of the supply chain in the export of products from Ukraine to the countries of the world of wheat and vegetable oils, where the value of Ukrainian wheat exports amounted to 10% of the world’s wheat, while vegetable oils amounted to 46% of the world’s vegetable oils, which left huge inflation in the price of wheat and oils exceeding 60%, and on the other hand, the supply chain of Russian gas and oil stopped to Europe, in addition to the zeroing of the trade balance between Russia and Europe and the subsequent repercussions in the search for alternatives.

Second: The embargo by NATO and the European Union countries on Russia and the diplomatic activity by the United States of America to tighten the screws on Russia and its allies.

Third: Finland and Sweden's accession to NATO, which in turn completes the halt in the supply chain in Europe. The road to the Russians in the Baltic Sea is closed, and tension is rising with Norway to reach Russia's Svalbard in the Arctic.

Fourth: Closing the Baltic Sea on Russian ships to the Bosporus Strait and stopping the Russian naval supply chain in the Baltic Sea.

Fifth: Russia now controls the Caspian Sea through a collective agreement with Azerbaijan, Turkmenistan, and Iran, which resulted in the opening of an international road that extends through the establishment of an international corridor from north to south with a length of 8000 km, starting from Saint Petersburg to the ports of Azerbaijan and the ports of Turkmenistan by sea and then by land To Iran to Bandar Abbas to extend by sea to the Indian ports and the international corridor works as an alternative route to ensure the Russian supply chain in reaching the countries of the East from the continent of Asia and another alternative towards the African continent.

Sixth: Russia follows the scorched-earth method in Ukraine by striking strategic industries in Ukraine and burning farms, especially wheat crops, which constitute a strategic commodity for Ukraine, which is 10% of the world's wheat, aiming to stop exports from Ukraine, in addition to the destruction of Ukrainian roads and ports as a result of the repercussions of the military attack. by the Russians.
Seventh: The United States and its allies seek an agreement to complete the division of the world to prevent the Russian supply chain from allying with Turkey and the Arab region from Egypt and Jordan, including the neighboring Gulf states on the borders with Iran, an ally of Russia... and Syria remains out of the account as it faces the Mediterranean Sea, which is offset by Europe. Closed to Russian products.

This international closure, in the event of the success of American diplomacy, extends from Istanbul to the Mediterranean to the Arab region, including the Middle East and the Gulf states, and extends to the Bab al-Mandab Strait, which ensures that it does not pass through the least expensive supply chains to the continent of Africa. On the other hand, it reached Iran to lease ports and corridors to Somalia... to ensure access to Africa and to ensure the completion of the supply chain with Russia
Eighth: China is the main cause of global inflation, as it benefited from storing raw materials in the Corona crisis and succeeded in controlling the prices of raw materials and seeks to raise the prices of raw materials and benefits from the high prices of transportation and logistics... At the same time, it is keen to ensure the continuity of the supply chain to The world from the other side represented by the Shatt al-Arab, to ensure competition to market its products that have invaded the world and which were not in the accounts of the West, as China today competes with the United States of America as the most powerful economy in the world as it ranks second in terms of the total Chinese GDP, which reached In 2021, it will amount to nearly 17.7 trillion, while the GDP of the US’s gross domestic product amounted to 22.9 trillion, while the Chinese gross domestic product is alarmingly rising for the competing countries, especially the United States of America.

Thus, China is not ready to enter betting on any party, whatever the guarantees are... It cannot take sides with Russia or ally with it for fear of interrupting the supply chain of Chinese goods that invade the world in the other direction. By securing markets for its products and wanting to miss the opportunity for India to take advantage of its regional position as an alternative to China, and thus China would be closer to neutrality according to its economic interests.

Ninth: Concerning the Middle East region, including the Arab region of Egypt, the Gulf states, Jordan, and Turkey, on the other hand, these countries as a whole are the ones who complete the closure and complete the halving of the world of the regional interests of those countries coincide with the United States of America and they have missed the opportunity for Iran To take advantage of its alliance with Russia through the alternative route from Bandar Abbas, which is a land and sea extension through the Caspian Sea Agreement, which guarantees the Russian supply chain to India.

Tenth: The question that arises is whether Saudi Arabia, the United Arab Emirates, the Gulf states, Jordan, and Egypt in general are working to close the supply chain, as Europe and NATO did...

The road was closed from the upper side in the north towards the Russians... and the closure remained from the south.

And Turkey may take advantage of the opportunity to reposition itself in Syria in the absence of the Russians and is looking for its economic interests, rather with the balance that prevails in the existing regional conflict, but Turkey remains within NATO, which may be closer to victory.

The blockade largely depends on Turkey, Egypt, Jordan, and the Arab Gulf states. This question remains subject to regional conditions and stakes.

Eleventh: The United States of America seeks to win Iran into consensus in the siege of Russia, or at least the position of neutrality, as it is the trump card in the hands of the Russians, which guarantees the alternative international corridor for the Russians from Saint Petersburg to India. On the other hand, Iran does not want to enter into a conflict with the countries of the region In light of the Russians’ preoccupation with the Ukraine war, and consequently, Iran’s involvement in a war with the countries of the region who suffer from Iranian threats and interference in the affairs of the countries of the region in their proxy wars and control over Iraq, Lebanon, Syria, and Yemen over the past years has become around the corner and therefore its involvement weakens the interests of the Russians and makes them In an unenviable position, I mean here Russia, in case the international corridor through Iran is cut off. Therefore, negotiation in this area is due to the American guarantees towards Iran and the countries of the region.

Here we can describe the supply and supply chain crisis as being complicated by the presence of countries outside the conflict that you find in the morning with NATO and at night, they negotiate with the Russians according to their interests.

The second crisis: is energy... and the OPEC crisis in limiting production.
First: The Russian interest is focused on not increasing oil production by the OPEC countries to prevent Europe and the United States of America from taking advantage of the alternative to compensate for the besieged Russian supply shortage and ensure high oil prices...

Second: The interest of the United States and the European Union is focused on increasing oil production by OPEC countries to compensate for the halt in the Russian supply chain of gas and oil to Europe and in return guarantee low oil prices.

Third: The interest of the OPEC countries not to increase oil production to take advantage of the margin of price hike to compensate for the decline that lasted for years and harmed their economies.

Here, the United States and its allies are seeking to persuade the OPEC countries, led by the Kingdom of Saudi Arabia, the United Arab Emirates, and all the Gulf countries, in addition to Iran and Iraq, to increase oil production in exchange for American guarantees in the region.

The third crisis: the acceleration of global inflation
First, how did inflation happen?
One of the main causes of inflation comes from the consequences of the Corona crisis, which came from the high prices of transportation and logistics after the increased demand for raw materials after stopping more than two years considering Corona crisis.

Second: The increase in transport and logistics prices in the global supply chain continues again as a result of the increase in demand for imports by land, air, and sea.
Third: China controlled the raw materials resulting from storing these materials considering the Corona pandemic.

Fourth: The emergence of a global supply chain crisis and its repercussions as a result of the Russian war on Ukraine and the blockade imposed by NATO, which led to the search for more expensive alternatives that are directly reflected in the prices of goods.

Fifth: The rise in production costs resulting from the rise in wages associated with the rise in raw materials and the wages of the supply chain.
And here, after explaining the three crises of the supply chain crisis, the energy crisis, and global inflation...

We must address some of the policies taken by the United States of America to raise interest rates to mitigate the repercussions of inflation... This step is in the interest of the dollar, which has become a difficult number in countries' reserves of foreign currencies in US dollars.

On the other hand, the demand for the euro decreased due to its inability to compete with the excess demand for the US dollar as a result of the United States of America raising the interest rate on the dollar. Total hard currency reserves.

At the same time, the energy crisis faced by the European Union countries is due to the repercussions of Russia’s war on Ukraine, which resulted in the interruption of the supply chain of Russian gas and oil to Europe, which was arriving at preferential prices.

What are the expected scenarios from a practical point of view...?
The first scenario. a partial closure through the success of the United States of America, NATO, and its allies in closing the supply chain road in the face of the Russians, provided that the commitment of the European Union countries, Turkey, China, and the Arab region is ensured in the partial closure to tighten the screws on the Russian supply chain.

The second scenario: the total closure and leaving the Russians alone through the success of the United States of America, NATO, and its allies in closing the road to the supply chain on Russia, if commitment from the European Union countries, Turkey, China, and the Arab region is ensured, and Iran wins in the total closure to tighten the screws on the Russian supply chain. In this scenario, it is expected that there will be a threat to global security as a result of the lack of alternatives for the Russians, and it may lead to a third world war.

The third scenario... Russia's success in attracting OPEC countries and ensuring commitment to limit oil production and victory in its war on Ukraine... and a Chinese-Russian-Iranian alliance... and this scenario may weaken the strength of the alliance with NATO and make Russia a country that extends deep into Europe.
The fourth scenario: the lack of clarity of alliances and the progress of countries within their economic interests, and here the theory of “who is not with me is against me” will not succeed.

This scenario is difficult to predict because international relations are complicated.

Fifth Scenario: The calm by all parties, the continuation of the supply chain, and the return of global calm and peace.

The repercussions of the three economic crises
1. The continuation of an unprecedented rise in transport and logistics prices as a result of the global supply chain crisis and as a result of closures and the search for new international corridors that are more expensive.
2. Continuing rise in the prices of raw materials such as iron, copper, and other raw materials that are used in industries.
3. The increase in food prices, especially the prices of wheat and vegetable oils.
The rise in prices of imported products from China as a result of the rise in the prices of raw materials and the prices of transport and freight
4. Global inflation escalates with alarming numbers and purchasing power declines
5. The deterioration of food security in non-producing countries and the increase in poverty.
6. Benefiting the producing countries that depend on the agricultural and industrial economy and extractive materials.
7. The deterioration of currency prices and the emergence of the production currency, which is an alternative to paper currencies and represents the production currency with the value of the state's reserve of its gross domestic product this is due to the appreciation of the Chinese yuan and the lack of cover in US dollars.
8. The rise in gold prices.
9. The inability of the International Fund to ensure financial stability.
10 The beginning of the complexity of international trade, the decline in employment opportunities, and the increase in the poverty rate.
Then comes the stage of global recession, which threatens to enter the beginnings of global depression...
God knows!

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