Report of the Strategic Director, Corporate Services and Governance
The Committee received a report to advise on the impact of the situation in Russia and the Ukraine on areas relevant to its remit.
In February, Russia began military invasion to Ukraine, this is the largest military conflict in Europe since the second world war.
A number of Trade Sanctions were imposed which together with the war itself are impacting both regionally and locally and on the Council’s commercial activities and resource implications. The committee were advised that in terms of the wider contextual issues including Covid-19, Brexit and other world-wide events are cumulating in material shortages, price instability and huge rises and further challenges to already strained supply chains and commissioned services.
Sanctions are penalties imposed by one country on another to stop it acting aggressively or breaking international laws. They are among the toughest actions nations can take, short of going to war. A wide range of sanctions have been imposed on Russia by the UK, the EU and the USA.
There are a number of companies who are pulling out of Russia. Work has been undertaken at a regional level by the North East Regional Enterprise Partnership to determine the impact of the war on Ukraine on the local economy. The local economy is not facing huge direct detrimental impact, however, individual sectors or organisations will be hit harder than others and knock on impact on the global supply markets will impact the local economy.
It is estimated that over the last 4 quarters:
· North East goods exports and imports to Russia account for 1% of the North East total, but 29% of North East petroleum and related products imported
· North East exports to Russia were valued at £154m, this was 1.3% of the North East’s total exports
· North East imports from Russia were valued at £121m, this was 0.94% of the North East total imports
· 8% of Englands exports to Russia were from the North East whilst 2% of England’s imports from Russia were to the North East
· 33% of the North East’s exports to Russia were classified as power generating machinery, 12% as road vehicles
· 52% of imports were classified as petroleum products and related materials, this was 29% of the North East’s total petroleum imports.
· 16% of England’s imports of petroleum were from Russia
Trading with Ukraine
· North East goods exports to Ukraine were minimal but Ukraine accounts for 1.4% of imports including 43% of North East iron and steel imports
· North East imports from Ukraine were valued at £176m, this was 1.4% of the North East’s total imports
· 7% of England’s esports to Ukraine were from the North East, whils 27% of England’s imports from Ukraine were to the North East
· 66% of the North East’s exports to the Ukraine were classified as road vehicles.
· 97% of the North East’s imports were classified as iron and steel, this was 43% of the North East’s iron and steel imports
· 5% of England’s imports of iron and steel were from the Ukraine
The Council have no direct links to Russian banks or financial institutions.
The UK, EU and USA has also imposed sanctions on hundreds of members of the Russian regime and wealthy business leaders (known as oligarchs) who are considered close to the Kremlin.
We have been provided by our bank (Barclays) with a list of companies and individuals who have been subject to UK Sanction and the Council does not make or received payment from any individuals or organisations on that list.
Western countries have frozen the assets of Russia’s central bank to stop it using its foreign currency reserves. Other international sanctions have also been introduced as detailed in the report.
Prior to the 24 February 2022, the UK was already in the midst of a global energy crisis due to record market high gas prices set by international markets. The conflict situation caused prices to surge by 60% within a day. The UK is not as dependent on Russian gas supply as our single largest source of gas is from the UK Continental Shelf and the majority of gas imports come from other European countries such as Norway. There are no gas pipelines directly linking the UK with Russia and imports from Russia typically make up less than 4% of the UK gas supply. Countries who import gas from Russia are trying to seek alternative sources and this is adding to the market pressure.
The Council’s energy suppliers Corona Energy, The Gateshead Energy Company and EDF have confirmed they have no trading or any other relationships with Gazprom or any of the Russian oil and gas producers. The Gateshead Energy Company also procures energy that it requires from Corona Energy.
There is currently a huge price increase in the cost of petrol and diesel, hitting historic highs. Prices were already rising before the situation in Russia and Ukraine and they have continued to rise due to concerns around supply and increases to the global cost of oil. There is also the possibility of fuel shortages on garage forecourts if the public begins to panic buy ( as we saw during Covid).
In terms of Council requirements we have been assured by our supplier that importers have guaranteed that the will be able to deliver contracted volumes to the authorities that participate in the NEPO contract, providing that the Councils all stick to their usual buying patterns. Any unusual ordering activity will be questioned and potentially refused to ensure continuity of supply to all authorities.
There will be a huge impact on food Ukraine has some of the most fertile soil in Europe and is the third-largest exporter of corn. It is also a primary exporter of sunflower oil, barley, corn, rise and potatoes. It is therefore inevitable that there will be a disruption of supplies of specific food stuff together with rising prices due to the shortages.
The shortage of food and unprecedented price rises impact directly on Gateshead residents, and it is also greatly impacting on the Council’s School Catering service. The School Catering service has previously been dealing with significant price increases linked to Covid-19, Brexit and rising costs in packaging, energy and distribution and the issues with the war in Ukraine are further exacerbating the situation.
The Committee were advised that even if the conflict ended now it is anticipated that the impact will continue for at least a further 18 months.
RESOLVED - (i) That the information contained within the report be noted;
(ii) That the Committee did not require a members seminar on any further issues a this point