Impact of Russian Invasion of Ukraine on Taiwan

This Rough draft is submitted in partial fulfilment of the project in “International

Business” for the requirement of the degree of B.B.A. L.L.B(Hons.)

Submitted to: Submitted by:

Dr. MD Safiullah ASHUTOSH RANJAN

Assistant Professor of Management Roll No. - 2812

B.B.A. LL.B.(Hons.)

Semester – 2nd

Chanakya National Law University, Patna

January, 2023

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 TABLE OF CONTENTS

Contents
ACKNOWLEDGEMENT ......................................................................................................................................... 3
DECLARATION ...................................................................................................................................................... 4
IMPACT OF RUSSIAN INVASION OF UKRAINE ON TAIWAN ................................................................................. 5
1.1 Introduction............................................................................................................................................... 5
1.1.1. Review of Literature .............................................................................................................................. 7
1.2 Present Study:- .......................................................................................................................................... 8
1.2.1. Research Objectives .............................................................................................................................. 8
1.2.2. Research Questions ............................................................................................................................... 8
1.3 Hypothesis ................................................................................................................................................. 8
1.4 Research Methodology ............................................................................................................................. 8
1.5 Scope & Limitation of Study ..................................................................................................................... 9
2. RUSSIAN INVASION OF UKRAINE ................................................................................................................... 10
3. IMPLICATION OF THE WAR IN UKRAINE ON GLOBAL ECONOMY .............................................................. 13
4. IMPLICATION OF THE WAR IN UKRAINE ON GLOBAL COMMODITY MARKET ........................................... 19
Bibliography:- .................................................................................................................................................... 27

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 ACKNOWLEDGEMENT

I would like to express my profound gratitude and deep regards to my guide, Dr. MD Safiullah,
Assistant Professor of Management, for assigning me the topic I was most interested in. It
was under his guidance that I structured my project and built on my abilities to research on the
subject.

I owe the present accomplishment of my project to everyone, who helped me immensely with
materials throughout the project and without whom I couldn’t have completed it in the present
way.

I would also like to extend my gratitude to my friends, family members and all those unseen hands
that helped me out at every stage of my project either financially, intellectually or emotionally.

Thank You,
Ashutosh Ranjan
Semester- 2nd
CNLU, Patna

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 DECLARATION

I hereby declare that the work reported in the B.B.A. L.L.B.(Hons.) project report entitled

"Russian Invasion of Ukraine on Taiwan" submitted at Chanakya National Law

University,
Patna is an authentic record of my work carried out under the supervision of Dr MD Safiullah.
I have not submitted this work elsewhere for any other degree or diploma. I am fully responsible for
the contents of my project report.

(Signature of the candidate)

Ashutosh Ranjan (2812)

B.B.A. LL.B.(Hons.)
2nd Semester
Chanakya National Law University, Patna

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IMPACT OF RUSSIAN INVASION OF UKRAINE ON TAIWAN

1.1 Introduction

Ever since Russia invaded Ukraine on 24 of February 2022. The concern of people about the
Chinese invasion of Taiwan have increased. This was supplemented by tacit support of
Russia by the Peoples Republic of China. Analysts and Think Tanks all over the world are
trying to draw parallels between the Russia – Ukraine and China – Taiwan conflict.
Since the war broke out, the phrase “Ukraine today, Taiwan tomorrow” is heard frequently
in Taiwan, though the island’s authorities under Tsai Ing-wen are quick to emphasize
difference. A stretch of ocean provides a natural barrier, for example, and then there is the
island’s geopolitical position — hints that the U.S. would surely help defend it.

What are the similarities between Ukraine and Taiwan?

Both of them have large powers as neighbours. Putin has long viewed Ukraine as something
that should be under the rule of Moscow, and we know that ever since 1949, the Communist
Party in China has viewed Taiwan as a territory that should be under its rule, even though
the party has never ruled Taiwan before. Both Russia and China have much larger militaries.
Both are nuclear powers, which creates a nuclear deterrent, which then makes other powers
want to limit their military actions. Neither Ukraine nor Taiwan is a full treaty ally of the
U.S. The U.S. is not obligated to defend them with its own military. Both are partners of the
U.S., and the U.S. is defending Ukraine with sanctions and weapons. The U.S. does have an
obligation to provide weapons of a defensive nature to Taiwan. That’s in a congressional
resolution.

How are the stakes different in case of Taiwan and Ukraine?

One could argue that there would be much more economically at stake if a conflict were to
erupt over Taiwan because China’s place in the world economy is much greater than

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 Russia’s. It’s the world’s second-largest economy. It has very integrated ties economically
with countries all over the world, including the U.S. If China were to try something with
Taiwan and if the U.S. were able to form a sanctions coalition like it did against Russia, China’s
growth and development would be harmed to a much greater degree. Taiwan itself economically is
also much more integrated into the world economy. It’s a critical origin point for semiconductors.
If there were conflict in Taiwan, that fact in itself tells us there would be much more disruption to
the world economy.

The other big difference, militarily, is that Russia’s invasion of Ukraine is a land invasion. Russia was
able to deploy its conventional land forces, and even then, it didn’t fare very well. In Taiwan, if the
Chinese were to try to invade, it would have to undertake mainly a seaborne invasion with air support
and that would be very complicated to pull off. It requires a lot more in terms of planning, resources
and training. And on the other side, because Taiwan is an island, it would be harder for the U.S. and
its allies to supply Taiwan with weapons in the way that it is doing to Ukraine, across the border from
Poland.

Keeping in mind the importance of Taiwan in global politics and the global supply chain
especially it’s role as a major semiconductor manufacturer any impact on Taiwan of Russian
invasion of Ukraine will have ramification for the whole world. Taiwan as a country is of
great significance to the world 1and it is in similar kind of situation that Ukraine faced. Due
to the unique Geo-political situation of Taiwan The war between Russia and Ukraine will
have a great impact on Taiwan.

1
Landry, C. (2022, August 2). The Taiwan Connection. The New York Times. Retrieved February 17,
2023, from https://www.nytimes.com/2022/08/02/briefing/russia-ukraine-war-taiwan.html
2 Russia-Ukraine War's impact on Taiwan (2022) China. Available at:
https://www.chinausfocus.com/peace-security/russia-ukraine-wars-impact-on-taiwan (Accessed:
February 17, 2023).

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 1.1.1. Review of Literature

1. Carol Landry, ‘The Taiwan Connection’, nytimes.com,

(August 2, 2022 ),
https://www.nytimes.com/2022/08/02/briefing/russia-ukraine-war-taiwan.html

This article explains what are the ramifications of the Russian Invasion of Ukraine on
Taiwan. It also tries to find out similarities and differences between the Russia-Ukraine
and China- Taiwan situation. This article also gives analysts opinion on the likelihood of
Chinese invasion of Taiwan.

2. Ragini Sehgal ‘Background of Russia-Ukraine Issue’ timesofindia.com,

(March 5, 2022, 14:17 IST)
https://timesofindia.indiatimes.com/readersblog/burningissues/background-of-russia-ukraine-
issue-41618/
This article explains in detail the background of the Russia-Ukraine wars. This articles
explains how the friendly relations between the two countries which were previously
members of the same USSR were destroyed and how the present situation came into being.
The article starts with the overview of the positive relations till early 2000s and then
explains how the relations started to strain in the year 2014

3. Evan A. Feigenbaum, Jen-yi Hou, ‘Overcoming Taiwan’s energy Trilemma’(April 27, 2020)
https://carnegieendowment.org/2020/04/27/overcoming-taiwan-s-energy-trilemma-pub-81645
This article explains in detail the risk created due to increasing oil prices. This article does a
deep analysis of the link between energy market risks and Taiwan’s economy as Taiwan’s
energy requirement are mostly met by imported fuels.

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1.2 Present Study:-

1.2.1. Research Objectives

1.) To understand the significance of the impact of Russian invasion of Ukraine on Taiwan.
2.) To study the similarities and differences of the Russia-Ukraine and China-Taiwan situation.
3.) To do a comprehensive study of the changes in geo-political situation of Taiwan due to the
Russia-Ukraine war.

1.2.2. Research Questions

1.) What is the Significance Russian invasion of Ukraine?

2.) How has the Russian invasion of Ukraine impacted Taiwan?
3.) How should Taiwan manage it’s situation with China which have many similarities with
the Russia Ukraine situation?

1.3 Hypothesis

In this project report, the researcher presumes that the Russian invasion of Ukraine have great
significance for Taiwan in light of the similar kind of situation it finds itself in with China .

1.4 Research Methodology

The researcher has adopted a purely doctrinal method of research. The study is based on
various primary and secondary sources of data collection such as websites of numerous
organizations, books, journals, articles and research papers.

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1.4.1. Mode of Citation

The researcher has followed the citation style as mentioned in the Bluebook 20th Edition.

1.5 Scope & Limitation of Study

The scope of the study of the researcher is to study about the impacts of Russian invasion of Ukraine
on Taiwan.

The limitation of the study is that it is more inclined to know about the impacts related to economy,
global supply chain and international business.

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2. RUSSIAN INVASION OF UKRAINE

The Russo-Ukrainian conflict, which started in 2014, significantly escalated on February 24, 2022,
when Russia invaded Ukraine. Tens of thousands of people have died as a result of the invasion,
which has also sparked the biggest refugee crisis in Europe since World War II. By June, about 8
million Ukrainians were internally displaced, and by February 2023, more than 8 million had left
the nation.

Following the 2014 Revolution for Dignity, Russia annexed Crimea, and paramilitaries backed by
Russia seized control of Ukraine's Donbas region's Luhansk and Donetsk oblasts, starting a regional
conflict. Russia started a military buildup in March 2021, accumulating up to 190,000 soldiers along
Ukraine's borders. Up to the day of the invasion, Russian government officials denied any
preparations to attack Ukraine. The Donetsk People's Republic and the Luhansk People's Republic,
two self-declared breakaway quasi-states in the Donbas, were recognised by Russia on February 21,
2022. The Russian Federation Council authorised the use of force the following day, and Russian
troops entered both regions.

Following Vladimir Putin's proclamation of a "special military operation" to "demilitarise" and

"denazify" Ukraine, the invasion got underway on the morning of February 24, 2022. In his speech,
Putin expressed irredentist opinions, questioned Ukraine's right to be a sovereign nation, and made
up evidence that the Ukrainian government was led by neo-Nazis who oppressed the ethnic Russian
minority. A few minutes later, Russian airstrikes and an invasion began on four fronts: the southern
front from Crimea, the south-eastern front from Donetsk and Luhansk, and the northern front from
Belarus towards Kyiv. President of Ukraine Volodymyr Zelenskyy responded by declaring martial
law and calling for a mass mobilisation.

By April, Russian forces had left the northern front. Russia won the battles on the southern and
southern-eastern fronts, taking Kherson in March and Mariupol in May after a siege. Russia started
a new Donbass war on April 18. Far from the battle lines, Russian forces continued to bomb water
and electricity infrastructure as well as military and civilian targets. Ukraine began
counteroffensives in the east and south in late 2022. The illegal annexation of four partially occupied
oblasts by Russia was declared shortly after. Ukraine retook Kherson in November.

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There has been strong international condemnation of the unlawful invasion. The General Assembly
of the United Nations adopted a resolution denouncing the invasion and calling for a complete
withdrawal of Russian forces. Russian military operations were ordered to cease by the International
Court of Justice, and Russia was ejected from the Council of Europe. Numerous nations placed
sanctions on Belarus, a friend of Russia, and gave military and humanitarian aid to Ukraine. Around
the world, there were protests; in Russia, there were more arrests and media repression. In response
to the invasion, more than 1,000 enterprises left Russia and Belarus. Since 2013, the International
Criminal Court has launched an investigation into the war crimes committed during the invasion
and crimes against humanity committed in Ukraine.

Background of the Russia-Ukraine issue

Positive relations till early 2000s

Since the creation of the USSR, Russia and Ukraine have been a part of it. However, a number of
circumstances, including Gorbachev's policies and internal problems brought about by cultural
variety, contributed to the breakdown of the USSR in 1991, which is the only time that Russia and
Ukraine had a breakup. The US, as the leader of NATO, saw this as a tremendous opportunity to
strengthen the alliance's influence and might by bringing in the former USSR's citizens.

Even after Ukraine's disintegration, relations between the two countries remained largely stable and
prosperous. Russia contributed to Ukraine's success, particularly in the military and economic
spheres. All military vehicles, including tanks and equipment, as well as fighter aircraft like the
MIG-21 were produced in Ukraine by Russia. In 1986, a nuclear catastrophe occurred at the
Chernobyl power station, which was built by Russia in the Ukrainian city of Pripyat. The cultural
ties between Eastern Ukrainians and Russians are still rather strong. Ukraine relinquished all of its
nuclear weapons and delivery systems to Russia after signing the Non-Proliferation Treaty, which
would have altered Ukraine's current stance in the current dispute if those materials were still in its
possession.

The initiation of restrained relations

Up until 2014, conditions in Ukraine were largely stable. Viktor Yanukovych was elected president
in 2010. As a pro-Russian, he vehemently disagreed with the strategic choice to admit Ukraine to

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the EU because, historically, EU states afterwards joined NATO under US control. The cultural
relations to Russia deepened during Viktor's presidency. However, the 2014 presidential elections
were lost by the pro-Russian president as a result of the EU's decision to prevent Ukraine from
joining. However, the newly elected government was strongly in favour of Ukraine joining the EU,
which infuriated Russia, which preferred that Ukraine remain independent of US influence. Russia
invaded Ukraine in 2014 as a result of pro-Putin separatists seizing large portions of the country's
east. At same time, Russia also annexed Crimea, which aided in boosting its power in the Black Sea
region. This annexation caused Russia to leave the G8 organisation, creating the G7.

To end the deadly armed conflict that was raging in east Ukraine at the time, Russia and Ukraine
signed the Minsk peace agreement in 2015. Russia made the announcement that it would send
"peacekeepers" to the area as the armed conflict went on. Moscow allegedly used it as justification
to grab Ukraine's sovereign land, according to Ukraine.

Ukraine made a political decision in 2017 to express its interest in joining NATO. The NATO
Treaty's Article 5 states that "The Parties agree that an armed attack against one or more of them in
Europe or North America shall be considered an attack against them all." This meant that all of the
member countries' armies, most notably the US's, could enter Ukraine, which could have been used
by the US to attack its main adversary Russia. Therefore, if Ukraine had joined NATO, Russia
would have become extremely exposed to US strikes, and it would have been very expensive for
Russia's national security.

Declaration of independent regions of Ukraine

Russia sent its separatist protestants in Donetsk and Luhansk of the Eastern region of Ukraine and
deployed its armies in these two regions, thus deploying its army at major borders of Ukraine. On
21 February 2022, Russia recognized two breakaway rebel regions – Donetsk and Luhansk – in
eastern Ukraine as independent States. This was a very clever step as giving these two regions the
status of independent nation-states gave Russia full authority to attack Ukraine in the name of
helping the two independent nations to fight against the persecution of Ukraine, which is supported
by the provisions in the UN charter, which allows the neighbouring states to intervene if an
independent state faces some oppression from its enemy if the oppressed nation asks for such help.
Russia is raging a war against Ukraine under the veil of “Military Operation”.

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 4. IMPLICATION OF THE WAR IN UKRAINE ON GLOBAL
ECONOMY

Global conditions before the war

The global economy was already slowing before the outbreak of hostilities. After reaching an
estimated 5.5 percent in 2021, global growth was expected to slow to 4.1 percent in 2022 and 3.2
percent in 2023 (figure 1.A; World Bank 2022a). The projected slowdown reflected intermittent
COVID-19 flareups, the exhaustion of pent-up demand, reduced monetary and fiscal policy support,
and lingering supply disruptions. These forecasts masked uneven prospects, with that of EMDEs
lagging substantially behind advanced economies (figure 1.B).

Most EMDEs were ill-prepared to face another adverse economic shock. The pandemic had
exacerbated unprecedented debt runups in most EMDEs (Kose, Ohnsorge, and Sugawara 2021). By
the end of 2021, EMDE fiscal deficits were wider than at the onset of the pandemic, with current
account deficits similarly deteriorated (figure 1.E and 1.F). Vulnerabilities were particularly acute
in low-income countries, with about half of them either experiencing or at high risk of debt distress
(World Bank 2022a).

Logistical bottlenecks, shortages of intermediate inputs, and sluggish supply of energy

commodities had been fueling global inflationary pressures. Global inflation had repeatedly
surprised central banks and market participants on the upside (figures 1.C and 1.D). After declining
to 1.2 percent (year-onyear) in May 2020, global inflation reached 6.5 percent in February 2022,
mainly due to supply disruptions and rising food and energy prices. Global inflation was expected
to peak in the first half of 2022 before declining through 2023, aided by well-anchored expectations
in the majority of countries. 2

2
Russia-Ukraine conflict may affect supply chains of semiconductors: Mos it (no date) The Economic
Times. Available at: https://economictimes.indiatimes.com/news/india/russia-ukraine-conflict-
may-affect-supply-chains-of-semiconductors-mos-it/articleshow/90597888.cms (Accessed:
February 17, 2023).

13 | P a g e
The withdrawal of macroeconomic support in 2022-23 was set to continue. Most advanced
economies were expected to gradually tighten monetary policy, unwind long-term asset purchases,
and raise policy rates. In EMDEs, the withdrawal of monetary policy support had begun earlier, and
was expected to quicken to stave off inflationary pressures. Meanwhile, fiscal policy would keep
tightening in most 6 countries over 2022-23, with attendant impacts on basic services and human
capital already affected by COVID-19.

Prior to the invasion, economic recoveries in Ukraine and Russia were already being held
back by lingering structural issues. Ukraine’s economy had been slowly recovering from the
pandemic, as drags from high energy prices and fiscal consolidation partly offset the boost to exports
from a bumper harvest and improving domestic demand amid easing COVID-19 restrictions. A
broad-based recovery was hinging on completing key reforms to stimulate private sector-led growth
and job creation by addressing bottlenecks to investment. After rebounding strongly in 2021, growth
in Russia was set to moderate to 2.4 percent in 2022. Continued recovery was hampered by high
inflation, tighter macroeconomic policy support, rising geopolitical tensions, and lingering structural
issues. Despite these headwinds, Russia had accumulated sizable macroeconomic buffers in recent
years. Following the annexation of Crimea and the oil price plunge of 2014-16, Russia introduced
an inflation target, exchange rate flexibility, and a fiscal rule that directs excess oil and gas revenue
to the National Wealth Fund. It had also accumulated substantial foreign exchange reserves while
running a large current account surplus, which reached a record US$ 159 billion on a 12-month
rolling basis in February 2022.

International response to the Invasion

In response to Russia’s invasion of Ukraine and subsequent actions, a number of countries

have imposed escalating financial, trade, and other sanctions. The extent of these sanctions is
unprecedented for an economy of Russia’s size and economic significance. They have been
implemented on top of existing sanctions.

• Financial sanctions. The United States, the European Union (EU), and other countries have
imposed blocking sanctions on the Central Bank of the Russian Federation (CBR). These prevent
the Russian authorities from accessing foreign exchange reserves in the custody of institutions in
sanctioning countries, or the liquidation of which would require access to financial systems in
sanctioning countries. This amounts to freezing about half of Russia’s foreign exchange reserves.

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 3
Transactions with Russia’s National Wealth Fund and Ministry of Finance have similarly been
blocked. Seven Russian banks—including VTB, the country’s second largest—have been cut off
from the SWIFT financial messaging system. Other prominent banks—including Sberbank,
Russia’s largest—are subject to direct sanctions ranging from restricted access to correspondent
banking networks to outright blocking of all transactions with entities in sanctioning countries. The
United States and United Kingdom have also implemented a ban on new investment in Russia,
widening prohibitions on investing in the Russian energy sector and some other entities.

• Trade sanctions. The United States, the EU, and other countries have enacted a growing list of
export bans, import restrictions, and other trade sanctions on Russia. Restrictions on exports to
Russia have focused on “dual-use” technologies, including semiconductors, goods and services
related to aviation, aerospace and oil and gas production, and luxury goods. Measures to curtail
imports from Russia include plans to reduce energy purchases, alongside a wide array of tariffs, 7
import bans and restrictions on other Russian goods and services. Regarding energy, the United
states has ended all imports of Russian fossil fuels, the United Kingdom is phasing out Russian coal
and oil imports, and Japan and the EU are phasing out Russian coal imports. The EU is also actively
considering sanctions on Russian oil, while Lithuania has become the first European country to
cease Russian gas purchases. In addition, the US, EU, and UK have closed their airspace to Russian
flights. In response, Russia has demanded payment for energy in rubles and introduced additional
export licensing restrictions, including within the Eurasian Economic Union, in an effort to secure
domestic food supplies (World Bank 2022b).

• Other sanctions. A large number of asset freezes and travel bans have been introduced targeting
the personal wealth and activities of specific Russian officials, politicians, and businesspeople. In
addition, more than 150 multinational companies have announced complete withdrawals from
Russia, while a further 250-plus have suspended operations or new investments. Entities and persons

3
Grossman, D. (2022) Ukraine War is motivating Taiwan to better secure its own future, RAND
Corporation. Available at: https://www.rand.org/blog/2022/05/ukraine-war-is-motivating-taiwan-
to-better-secure-its.html (Accessed: February 17, 2023).

15 | P a g e
in Belarus associated with Russia’s invasion, including financial institutions and defense and
security sector companies, are subject to various travel bans, asset freezes and export bans.

Impact on Ukraine and Russia

The war has caused an enormous humanitarian crisis in Ukraine.

Urban centers in many parts of the country have been badly damaged, maritime, road and rail transit
have been severely disrupted, and vital economic and social service infrastructure including power
generation, digital infrastructure, bridges, and ports has been destroyed or rendered unusable. As of
the end of March, nearly 6 million Ukrainians had little or no access to safe water. About 12 million
people are estimated to have been displaced as of mid April and a similar number of people—
especially the elderly and infirm—urgently require humanitarian assistance (UNHCR 2022). The
war is also substantially eroding human capital. It is likely to have a particularly acute impact on
children by increasing malnutrition and stunting, reducing years of schooling, and worsening labor
market outcomes (Akresh, Caruso, and Thirumurthy 2022; Acosta et al. 2020).

Ukraine’s economy is being devastated. To support the economy and ease pressures on FX
reserves and banks, Ukraine imposed emergency financial measures (including capital controls and
banking sector restrictions) and announced tax deferrals, while fully meeting domestic and external
debt obligations. These measures have helped to prevent financial collapse. Economic activity in
Ukraine has been rendered impossible in some areas, with the war destroying a critical amount of
productive infrastructure and forcing businesses to close. Goods trade has come to a grinding halt,
as damaged transit routes impede shipment by land while the loss of access to the Black Sea cuts
off all seaborn trade, which accounts for half of Ukraine’s exports. The war is expected to halve
output in 2022, with GDP falling around 45 percent, according to the World Bank’s recently released
Europe and Central Asia Update (Table 2; World Bank 2022b). The forecast assumes the war
continues for several more months but remains contained to the geographical areas where it is
currently occurring. Going forward, Ukraine will require additional 8 external financial assistance

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 and its debt will likely have to be restructured to support a robust reconstruction and recovery and
to anchor fiscal sustainability. 4

In Russia, financial asset prices have sustained severe losses, with the economy likely to remain
at risk of financial turmoil for the foreseeable future. Yields on Russian dollar-denominated debt
have surged, while activity on the Moscow Stock Exchange was suspended between February 25th
and March 24th after sharp falls in equity prices (figure 2.A). The trading of Russian securities has
also been suspended on many international exchanges, with Deutsche Boerse, for example, halting
all trading in Russian securities until further notice at the beginning of March. The value of the ruble
fell as much as 40 percent in two weeks following the start of the war, but has since substantially
rebounded as capital controls were imposed, with Russian authorities taking numerous steps to
prevent foreigners selling ruble-denominated assets or hard currency leaving the country. To help
limit the ruble’s depreciation and ensuing inflation, the CBR raised its policy interest rate by 10.5
percentage points in late February, to 20 percent; it subsequently reduced it to 17 percent on April
8th as pressures on the ruble abated. In late March, the Russian government had announced it would
require European energy imports to be invoiced in rubles. European countries have resisted the
proposed change of payment terms and it is as yet unclear whether or how it will be enforced.

Russia has been assigned a “selective default” credit rating, and credit default swap prices
indicate a high probability of future sovereign default. The likelihood of a sovereign default
increased in April when the Russia attempted to service international debt in rubles rather than
dollars, following moves by the U.S. government to block Russian debt service payments made
from dollar accounts held with U.S. financial institutions. Subsequently, S&P Global Ratings
assigned a “selective default” rating to Russia, indicating that it was unlikely the ruble payments
would be converted to dollars within a 30-day grace period, starting April 4th, 2022 (Govind 2022).
On April 11th, a creditor committee determined that Russian Railways was in default on

4
Grossman, D. (2022) Ukraine War is motivating Taiwan to better secure its own future, RAND
Corporation. Available at: https://www.rand.org/blog/2022/05/ukraine-war-is-motivating-taiwan-
to-better-secure-its.html (Accessed: February 17, 2023).

17 | P a g e
participation notes in a Swiss franc-denominated loan, marking the first international default by a
Russian entity since the war started (Strohecker and Do Rosario 2022).

The Russian economy is being tipped into a recession. High-frequency indicators point to a sharp
decline in economic activity in March, with the composite PMI falling deep into contractionary
territory as sanctions trigger a collapse in domestic demand. Inflation soared alongside the initial
depreciation of the ruble and supply shortages, rising from 9.2 percent (y/y) in February to 16.7
percent (y/y) in March. For this year as a whole, Russia’s GDP is projected to contract by about 11
percent compared to previous projections for a 2.4 percent expansion (World Bank 2022b). The
withdrawal of many foreign enterprises from Russia and a sharply deteriorated outlook will dry up
investment, while pressure on households from fast-rising prices and declining incomes will weigh
heavily on consumption; this will only be partly offset by fiscal policy support. Import compression
due to the plunge in demand and export bans to Russia will ameliorate external financing.
Nonetheless, the disruption of imports has already interrupted domestic production, including in the
automobile and aerospace sectors. Announced bans and reductions in purchases of Russian oil and
gas are expected to lead to a moderate fall in shipments this year. Exports of key high-tech goods—
including software and semiconductors—to Russia have been banned which 9 will starve it of
critical inputs and exacerbate supply chain disruptions in the country. The current package of
sanctions will have a lasting negative effect on Russia by curtailing oil production due to the exit of
foreign oil companies, fall in investment, and reduced access to foreign technology.

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5. IMPLICATION OF THE WAR IN UKRAINE ON GLOBAL
COMMODITY MARKET

Russia and Ukraine are major exporters of several commodities. As a result, the war has
triggered large surges and volatility in the prices of these commodities.

• Russia is the world’s largest exporter of wheat, accounting for 18 percent of global exports;
Ukraine accounts for a further 7 percent. Russia is also the largest exporter of natural gas (25
percent), palladium (23 percent), nickel (22 percent), and fertilizers (14 percent). It also accounts
for 18 percent of global exports of coal, 14 percent of platinum, 11 percent of crude oil, and 10
percent of refined aluminium.

• Ukraine is the largest exporter of seed oils primarily used in cooking, accounting for two-fifths
of global production, and is also the fourth largest exporter of corn, accounting for 13 percent of
global exports. Ukraine also produces up to 50 percent of global neon gas which is a critical element
used in chipmaking.

Energy and agricultural commodity prices have surged. Price increases have been large for
commodities where Russia and Ukraine are key exporters (figure 3.A). Since the beginning of the
war, coal prices have jumped by 60 percent, European natural gas by more than 30 percent, and
wheat prices by around 40 percent. Brent crude oil prices reached a 10-year-high of $130 per barrel
at the beginning of March as the UK and US banned Russian oil imports; however, prices later fell
to close to $110 per barrel. Prices have been extremely volatile, with very large intraday moves, and
in the case of oil, shifts in futures curves (figure 3.B). Sanctions on financial intermediaries have
also made it costlier to settle transactions involving Russian oil. Russia has struggled to find buyers
for its crude as a result, and the price of Urals (the Russian benchmark) has been trading at a discount
of more than $25/bbl relative to Brent (figure 3.C). As noted earlier, the increases in the price of

19 | P a g e
 agricultural commodities and related inputs such as fertilizers are particularly pernicious, as they
compound the impact on poor and vulnerable groups.5

The rise in commodity prices comes on top of sharp increases since January 2022. In addition
to geopolitical risk premia, the overall rise in prices has been driven by rebounding demand for
commodities as the global economy recovers. Production among OPEC+ countries has also been
weaker than expected (figure 3.D). Higher energy costs have pushed up prices of other energy-
intensive commodities, such as fertilizers and aluminium. Inventories of industrial commodities
have fallen sharply, particularly for crude oil and tin.

Europe’s dependence on Russia for energy renders its economy vulnerable. The euro area is
grappling with a 400 percent increase in gas prices and a doubling of oil prices since January 2021.
Increasing 12 energy prices account for nearly two thirds of the 7.5 percent increase in euro area
annual inflation in March 2022 and are weighing on euro area production costs and purchasing
power.3 Should Russia curtail exports of crude oil and/or natural gas to Europe, regional prices
would spike further—Russian exports account for more than 35 percent of the euro area’s imports
of natural gas, more than 20 percent of oil, and 40 percent of coal (figure 3.E; Bachmann et al.
2022). Russia is also dependent on the euro area for its exports, with around 40 percent of its crude
oil and natural gas going to the euro area. While Russia may eventually be able to redirect some of
its exports of gas and oil to others, this will be constrained by the existing pipeline infrastructure.

Some EMDEs rely heavily on Russia and Ukraine for food and fertilizer. Russia and Ukraine
account for more than 75 percent of imports of wheat in many countries, especially in ECA, MNA,
and SSA (figure 3.F).4 Similarly, for corn and seed oils, Ukraine accounts for a large share of
imports of some countries. Ukraine’s wheat production is concentrated in the South and East of the
country where the conflict is most intense, and the spring planting season for other key crops such
as corn, barley, and sunflowers is expected to be partially disrupted. Logistics relating to
transporting crops also remain a challenge; about 90 percent of Ukraine’s grain trade flows through

5
Grossman, D. (2022) Ukraine War is motivating Taiwan to better secure its own future, RAND
Corporation. Available at: https://www.rand.org/blog/2022/05/ukraine-war-is-motivating-taiwan-
to-better-secure-its.html (Accessed: February 17, 2023).

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Black Sea ports that are not currently operational. Russia has recommended that fertilizer
manufacturers halt exports of fertilizer, which will hinder food production in parts of the world,
since Russia is the largest exporter of fertilizers, accounting for 13 percent of global exports.

Conversely, net commodity exporters, particularly energy exporters, may benefit in the near
term from higher commodity prices. The impact is likely to be largest in some Organization of
Petroleum Exporting Countries (OPEC) and other energy exporters, especially in Latin America,
which will see increased export and fiscal revenues, although some of the windfall may be limited
by previous hedging activity. Among some exporters of non-energy commodities, however, the
benefits of higher prices will be eroded by increased input costs from energy and fertilizer.

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 6. IMPACTS OF THE RUSSIAN INVASION OF UKRAINE ON
TAIWAN

The conflict between Russia and Ukraine has had a significant impact on the global economy,
including the economy of Taiwan. While Taiwan is not directly involved in the conflict, it is still
affected by the geopolitical tensions in the region, particularly due to its dependence on Russian
energy imports and its trade relationships with Europe.

Oil and gas imports: According to data from Taiwan's Ministry of Economic Affairs, Russia is one
of the top suppliers of crude oil and liquefied natural gas (LNG) to Taiwan. In 2021, Taiwan imported
11.8 million barrels of crude oil from Russia, accounting for around 9.6% of its total crude oil
imports. Taiwan also imported 1.77 million metric tons of LNG from Russia in 2021, accounting for
around 6.8% of its total LNG imports.

Export destinations: According to data from Taiwan's Ministry of Finance, the top export
destinations for Taiwan in 2021 were China, the US, and Hong Kong. However, exports to these
countries also declined compared to the previous year. Exports to China decreased by around 8.6%,
exports to the US decreased by around 2.6%, and exports to Hong Kong decreased by around 3.7%.6

Trade with Russia and EU: In addition to the decline in exports to Russia mentioned earlier, Taiwan's
imports from Russia also decreased in 2021, by around 16.8% compared to the previous year.
Taiwan's total trade with the European Union (EU) also declined in 2021, with total trade volume
decreasing by around 2.9% compared to the previous year.

Stock market performance: As mentioned earlier, the Taiwan Stock Exchange Weighted Index
(TAIEX) declined by around 8.8% between February and March 2022. However, the TAIEX has
since rebounded and as of February 16, 2023, it is up around 10.2% compared to its March 2022
low.

Energy prices: The impact of the Russia-Ukraine conflict on energy prices has been felt around the
world. According to data from the International Energy Agency, the price of Brent crude oil (the

6
Grossman, D. (2022) Ukraine War is motivating Taiwan to better secure its own future, RAND
Corporation. Available at: https://www.rand.org/blog/2022/05/ukraine-war-is-motivating-taiwan-
to-better-secure-its.html (Accessed: February 17, 2023).

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international benchmark) increased from an average of $44.17 per barrel in 2020 to an average of
$69.25 per barrel in 2021, an increase of around 56%. This increase in oil prices has led to higher
energy costs for Taiwan, which imports nearly all of its crude oil and natural gas. According to data
from the Taiwan Power Company, the average cost of electricity in Taiwan increased from NT$2.44
per kilowatt-hour in 2020 to NT$2.82 per kilowatt-hour in 2021, an increase of around 15.6%.

Semiconductor industry: The semiconductor industry is a major driver of the Taiwanese economy,
and the Russia-Ukraine conflict has had an indirect impact on this sector. According to data from
the Taiwan Semiconductor Industry Association, the global shortage of semiconductor chips caused
by the COVID-19 pandemic has been exacerbated by the conflict, which has led to supply chain
disruptions and increased lead times for equipment and materials. This has affected the production
and delivery of semiconductors, which are used in a wide range of products, from smartphones to
automobiles.

Tourism: The Russia-Ukraine conflict has also affected the tourism industry in Taiwan, as the
conflict has increased geopolitical risks and uncertainty. According to data from the Taiwan Tourism
Bureau, the number of international visitors to Taiwan in 2021 was around 3.2 million, a decrease
of around 87.7% compared to the previous year. This decline in tourism has had a significant impact
on the hospitality, transportation, and retail industries in Taiwan, which rely heavily on tourist
spending.

Foreign investment: The Russia-Ukraine conflict has also led to a decline in foreign investment in
Taiwan. According to data from Taiwan's Ministry of Economic Affairs, foreign direct investment
(FDI) in Taiwan decreased by around 7.2% in 2021 compared to the previous year. This decline in
FDI can be attributed to the global economic uncertainty caused by the conflict, as well as other
factors such as the ongoing COVID-19 pandemic and changes in global trade policies.

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 7. CONCLUSION AND SUGGESTIONS

Taiwan’s economy shrank 0.86 percent year-on-year in the fourth quarter of 2022, below the market
forecasts of a 1.3 percent rise and following a 4.01 percent growth in the previous three-month period,
according to preliminary figures. It was the first contraction since Q1 of 2016, as trade got hit by subdued
external demand. Both exports (-5.09 percent vs 2.75 percent) and imports (-1.61 percent vs 2.3 percent)
declined. Also, softer increases were seen in private consumption (2.89 percent vs 6.95 percent) and
gross capital formation (0.03 percent vs 0.31 percent). Meanwhile, government spending increased faster
(3.14 percent vs 2.12 percent). On a seasonally adjusted quarterly basis, the economy declined 1.08
percent, shifting from 1.83 percent growth in the previous three-month period. Considering the full 2022,
the economy advanced by 2.43%, the least since 2016.

Taiwan’s economy also suffered as Taiwan is a major semiconductor producer and both Russia and
Ukraine are important raw material supplier of substances used in Semi Conductor production.

The challenges of the past two years have highlighted the importance of semiconductors in almost all
aspects of life. The economic resiliency of many industries is supported by solutions powered by
semiconductors, including remote connectivity, portable computing and communication infrastructure.

Russia and Ukraine are major producers of two key materials used in semiconductor manufacturing: neon
and palladium. Ukraine represents about 70 to 80 percent of the global supply of neon 1, and Russia
produces about 35 to 45 percent of the world’s palladium supply.

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• Neon: Neon is used in the deep-ultraviolet lithography process in semiconductor manufacturing,
which accounts for about 45 percent of neon demand3. Neon is a byproduct of older types of steel
plants, which still exist in Ukraine but have been phased out elsewhere (which is why supply is
so concentrated). Technically, neon can be recycled and reused4. Not all semiconductor firms
have made the investment to do so, preferring to stockpile the gas — despite the warning signs
seen after the 2014 Russian annexation of Crimea, when neon prices spiked by 600 percent5.
• Palladium: The palladium supply is less exposed to the war, but shortages could affect both
semiconductor production and demand. Palladium is used in plating applications in
semiconductor production and is essential for catalytic converters. Automakers that can’t produce
vehicles because of catalytic converter shortages would also reduce chip orders.
• Other materials: Nickel, gold and silver are also important for semiconductor manufacturing.
Russia is one of the top five global producers of nickel, but the nickel supply is less concentrated
so the impact may be limited. Prices for gold and silver have also jumped. Semiconductor
customers are usually on direct pass-through price agreements for such volatile commodities, so
they may feel the impact more than manufacturers will.

Short Term Impact

Due to the 2014 Russian invasion of Crimea and the shortages of the past 18 to 24 months, many
companies put in place risk-mitigation plans. As a result, several key companies and industry
alliances have said there will be no short-term impact due to lack of materials.6 It’s estimated that
these mitigation plans can only prevent production disruptions for two to three months. The
industry still depends on the region and can’t quickly find effective alternative supply.

Long-term impact may be serious

The semiconductor supply chain is extremely interconnected, and should tariffs and trade
limitations be expanded, the complexity and cost for the industry will likely increase. Depending
on how events unfold, there may be serious consequences with production line closures, price
increases and decreased output, revenues and profits.

Keep a close eye as the situation evolves — but it’s important to note that the industry isn’t yet
at this stage.

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Make contingency plans

Short-term impacts on semiconductor production are expected to be manageable. But the war’s
effects on raw material prices, supply-chain constraints and uncertainty may affect chipmakers
and consumers.

If the war continues, companies should be prepared for more severe supply-chain impacts.

Companies should review their business continuity plans, look for alternative sources of neon and
palladium, and use forward pricing to protect against price fluctuations on other critical materials.

In the medium term, companies should also fully understand their supply chains and customer
fulfillment networks so they can model the impact of potential disruptions from the war and
sanctions. In the longer term, companies might also consider making more substantial investment
in neon recycling technologies.

Unless neon prices increase permanently, producing neon outside Ukraine isn’t likely to become
economical. But some governments may see it as a national security option.

Taiwan as a major semiconductor producer is bound to suffer if the war continues for too long.
Taiwan need to make contingency plan if it want to save it’s economy from getting impacted.

Both Russia and Ukraine are a major supplier of oil and raw materials for semiconductor so the
conflict between them is going to affect the world economy by creating hike in oil prices and
disturbing semiconductor productions.

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 Bibliography:-
1. Carol Landry, ‘The Taiwan connection’, nytimes.org , (August 2),2022, Available at
https://www.nytimes.com/2022/08/02/briefing/russia-ukraine-war-taiwan.html , (Last visited on
January 15, 2023).
2. https://www.chinausfocus.com/peace-security/russia-ukraine-wars-impact-on-taiwan
3. https://www.politico.eu/article/taiwan-lesson-war-ukraine-russia-china-europe-catch-up/
4. https://www.rand.org/blog/2022/05/ukraine-war-is-motivating-taiwan-to-better-secure-its.html
5. https://kpmg.com/xx/en/home/insights/2022/08/semiconductor-considerations.html
6. https://thediplomat.com/2022/07/china-is-not-russia-taiwan-is-not-ukraine/
7. https://economictimes.indiatimes.com/news/india/russia-ukraine-conflict-may-affect-supply-
chains-of-semiconductors-mos-it/articleshow/90597888.cms?from=mdr
8. https://tradingeconomics.com/taiwan/gdp-
growth#:~:text=GDP%20Growth%20Rate%20in%20Taiwan,the%20third%20quarter%20of%202008
9. https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=TW
10. https://www.nytimes.com/2022/08/02/briefing/russia-ukraine-war-taiwan.html
11. https://timesofindia.indiatimes.com/readersblog/burningissues/background-of-russia-ukraine-issue-
41618/
12. https://www.bbc.com/news/world-europe-60506682

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