The Impact of the Russia-Ukraine Conflict on the European Automotive Industry​

By Jake Rickman​

What do you need to know this week?

The horrific war Russia is waging in Ukraine is approaching two full weeks and there is no indication of a permanent ceasefire in sight. A conflict as catastrophic as this, especially if it persists, will have a profound impact on the global economy, to say nothing of the lives lost and people displaced.

Some sectors are more impacted by the conflict than others. As Forbes notes, European automotive manufacturing businesses such as BMW, VW, and Renault face some of the most severe disruption because of the crisis.

Why is this important for your interviews?

One way to approach commercial awareness is to consider why a particular event has the effect it does through the lens of the key commercial drivers. One of the most rudimentary yet effective ways to do this is to consider how an event impacts a business or sector’s supply and demand.

In the case of supply, Russia’s invasion of Ukraine has had two main effects. The most obvious one is that the war has made it impossible for many businesses to continue operating in Ukraine because of the danger of doing so. From the standpoint of auto manufacturers, this is a problem if they rely on the supply of specific industries disrupted in Ukraine, which is, in fact, the case. Specifically, Ukraine is a key producer of wire harnesses used in the assembly of cars.

Secondly, in response to the invasion, Western powers have imposed severe sanctions on Russia, which makes it illegal to buy goods from Russian entities. This is a problem for automakers because Russia is one of the largest suppliers of palladium, copper, and nickel — all of which are necessary for the production of cars.

In the case of demand, the war has erased demand for goods in the conflict zone for the same reason the supply of goods has been disrupted. The sanctions also make it illegal to sell goods to Russian consumers, which disproportionally affects Renault because 10% of its global revenue comes from the Russian market.

How is this topic relevant to law firms?

Applying the same principle of cause and effect, how does the disruption in the automotive manufacturing supply chain (the cause) involve law firms?

If we think of the supply chain in terms of a series of contracts for the sale and purchase of goods, what happens if one party is no longer able (or refuses) to fulfil its obligation in the chain?

It may mean they are in breach of their duties, which will often give rise to disputes: for instance, is Russia’s invasion of Ukraine a frustrating event, or is there a force majeure clause in effect? Firms with strong commercial dispute resolution practices can advise parties as to the effect of their contracts.


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