Russia’s invasion of Ukraine has led to a supply chain crisis spanning multiple sectors. The rocketing price of oil and concerns over food security for large parts of Europe have caused market volatility across the globe.
Interos, the artificial intelligence-enabled (AI) supply chain management company, have dedicated its in-house laboratory to analysing the growing effects of the crisis. With data points including commodity prices, sanctions lists, demand predictions and available supplies, the company has published in-depth analyses tracking the impacts of sanctions, industry fallout, and extended supply chain connections in Russia and Ukraine.
Hidden Ukrainian connections in supply chains
The inter-connectivity of global supply chains is taken for granted. As one Volkswagen executive told the Wall Street Journal, “Ukraine is not central to our supply chain, but suddenly we discovered that when this part is missing, it is.”
According to Interos’ data, Germany-based firms across all industry sectors have:
- Tier-2 connections with more than 1,600 suppliers in Ukraine, and over 7,500 in Russia
- Tier-3 connections with more than 12,200 suppliers in Ukraine, and over 18,200 in Russia
Broadening the focus to the European Union as a whole plus the UK, the number of tier-2 and tier-3 connections with Russian and Ukrainian suppliers is greater still:
- More than 8,200 European firms have tier-2 suppliers in Ukraine, and over 38,000 have tier-2 suppliers in Russia
- More than 109,000 European firms have tier-3 suppliers in Ukraine or Russia
In its new report, titled “Expanded analysis on Europe – Ukraine supply chains shows hidden connections”, Interos’ analysts explore the implications of opaque second and third tier supply chains concluding: “Greater awareness of the level and nature of that interdependence is essential to building a supply chain and business community that can withstand immense shocks and continue to provide essential services and information in times of crisis.”
How government sanctions are impacting Russia
In the avoidance of military conflict, western governments have taken to sanctioning Russian exports and banning financial entities from sending any U.S dollars to the Russian Central Bank or other Kremlin-linked organisations.
In a paper titled “Impact of government sanctions on Russia’s supply chain”, the analysts concluded:
“Looking just at the newly U.S.-sanctioned Russian financial institutions, an analysis of Interos’ global relationship data found over 920 distinct related entities in our platform. The majority of the entities directly affected are in the U.S. (8%), followed by the UK and Ukraine (6% each). The industries directly affected by these sanctions are primarily oil and gas (20%). Next are banks (18%) and other firms operating in global capital markets (6%). These numbers will grow exponentially as more sanctions are announced. Russian companies will continue to lose liquidity in equity markets and in their ability to raise capital around the world.”
Cyber risk on aerospace and defence infrastructure
Cyber warfare is nothing new. As far back as 2018, there were 80,000 cyber attacks recorded each day.
Typically, these attacks fall into one of two categories:
- Distributed denial of service attacks (DDOS) where enormous amounts of traffic are sent to a web server in an attempt to overload it and bring the website offline.
- Intellectual property theft where files or information are stolen from a web sever, either by brute force hacking or exploitation of existing security weaknesses.
According to Interos’ insight, aerospace and defence infrastructure is a particularly inviting target for cyber attacks.
With supply chain attacks so prevalent (targeting upstream providers of major companies to either disrupt the supply of physical parts or infect software tools with malicious code), the team analysed the top 100 defence contractors and found the following insights:
“We found that this group of top defence contractors have 1,755 suppliers in common. This included six of the top 20 suppliers to the industry. One of these six suppliers had 27 separate connections to the top defence contractors. And the list doesn’t only include component and material suppliers, but also banks and financial institutions. Indeed, 29 of the A&D companies use the same bank, according to our proprietary data.”
This insight comes with the caveat that the researchers are not suggesting there is an ongoing cyber threat. “But the existing level of concentration risk revealed in the data, which is not atypical, could magnify the damage of a large scale cyber attack.”
Who are Interos?
Interos, who conducted the research, is a leading provider of artificial intelligence tools to analyse and mitigate issues within supply chains.
The company has offices in the United States of America, Germany and the United Kingdom.