UK prime minister Boris Johnson has travelled to Abu Dhabi to try and persuade Gulf states to increase oil and gas production after saying the west needs to end its “addiction” to Russian energy.
Johnson is meeting crown prince of Abu Dhabi Mohammed bin Zayed to discuss oil and gas supplies before travelling to Saudi Arabia to speak with crown prince Mohammed bin Salman.
Speaking to broadcasters in Abu Dhabi, Johnson said: “When we look at the dependency the west in particular has built up on Putin’s hydrocarbons, on Putin’s oil and gas, we can see what a mistake that was because he’s been able to blackmail the west and hold western economies to ransom – we need independence.”
The crown princes have reportedly refused calls from US president Joe Biden, who has also been looking to the countries to up oil production following boycotts of Russian oil.
Ken Koenemann, vice president for supply chain and technology for TBM Consulting Group, told Supply Management supply disruptions could last up to 18 months as a result of the war.
“Estimating the length of time the impact will last is difficult. Much will depend on what happens in the conflict and how long it continues,” he said.
“If I had a crystal ball that gave me an answer, I would be thinking that the impact will last 6-18 months. It is a wide range but has so many variables to consider unless Russia stops the conflict and settles for some type of arrangement that rolls back some of the sanctions.”
Koenemann said even if the conflict were to end shortly, the damage inflicted would have “ongoing ramifications” for supply chains.
Koenemann suggested procurement teams consider the following points:
1. Sourcing alternative suppliers
Koememann said supply chain teams need to priortise finding alternative suppliers as a result of the war.
“First, they need to quickly find alternative sources to handle short-term requirements for their businesses. Once the alternative is found they need to be doing more around finding alternatives to the alternatives.”
He said many procurement teams had already started looking at localising suppliers and this “will need to continue”.
He said: “This is another geopolitical event that shows we must think differently about global supply chains.”
2. Review supply chains
Procurement teams need to review their supply chains as soon as possible if they haven’t already, he said.
He said: “I would hope given the pandemic and all of the other supply chain disruptions that have occurred over the last few years, would mean that these organisations are already reviewing their sourcing strategies and policies. Russia is another element that needs to be included in the review if it was not already included.”
3. Hedging and alternative commodities
“There are many different strategies that can be used to mitigate high commodity prices, but many will not help right now if they were not already implemented,” Koememann warned.
However, he said: “Hedging has long been a practice used by global companies to deal with commodity price changes. Secondly, procurement teams must find alternative commodities that could be used that may not cost as much. A third strategy, which will not necessarily help with prices but more so with supply, is alternative suppliers.”
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