From iPhones to Planes: How the Russia - Ukraine war threatens supply chains

The Russian invasion of Ukraine could exacerbate existing supply chain problems affecting the electronics production industry, though the effects may take time to be felt.

In February, Russian President Vladimir Putin ordered a full-scale invasion of Ukraine by land, sea, and air. The ongoing conflict represents the largest ground war in Europe since World War II.

As a result of the Kremlin's aggression in Ukraine, many Western countries have slapped volleys of sanctions on Russia, which is a major exporter of raw materials critical to several industries. Ukraine itself is also rich in rare materials used in electronics production.

Here's how the conflict could affect production of electronics — including everything from consumer technology to medical equipment.

Raw materials

Russia is the world's primary exporter of palladium, a metal used in electronics applications such as memory cards and sensors. The typical iPhone, for example, is estimated to have about 0.015 grams of palladium. It's often used for electrodes or as components and connector platings.

According to CNBC, about 35% of the U.S. palladium supply is sourced from Russia.

There's also neon gas, which is used as a component and consumable in lasers used in chipmaking. Ukraine supplies more than 90% of the semiconductor-grade neon to the U.S. The gas itself, purified in Ukraine, is a byproduct of steel production in Russia.

Russia is also a top producer of titanium, which is used in everything from the chassis of specific iPhone models to the construction of aircraft. However, China and the U.S. are both major titanium exporters, meaning that the world's industries aren't wholly reliant on the Russian Federation.

Apple, for its part, lists 10 Russia-based mental smelters and refiners in its supply chain as of December 2020. The smelters and refiners produce tantalum, tungsten, and gold used in Apple products.

The effects of the conflict could even drive up prices for materials that aren't primarily sourced from Ukraine and Russia. For example, Russia produces only 6% of the world's aluminum, but economic sanctions are driving up prices of the metal, which is used in the casings of nearly every Apple product.

There's also, of course, the issue of energy. Russia and Ukraine are major producers of oil and natural gas for Europe. With already tight supply, the conflict is causing the cost of energy in some regions to skyrocket.

Stockpiling

Although Eastern Europe supplies the majority of some materials for electronics productions, chipmaking firms say they aren't currently feeling any significant effects. Chipmaking companies say that they are better prepared than in recent years because of material stockpiling and diversified sourcing.

Intel says it doesn't anticipate a direct impact. The same goes for GlobalFoundries and United Microelectronics Corp, which both claimed to have the flexibility to seek sources outside of Russia and Ukraine.

While Apple supplier TSMC declined to comment to CNBC, the Taiwanese Ministry of Economic Affairs said it checked the country's semiconductor supply chain and found "no direct impact on materials or production activities."

Taiwanese chipmakers, which includes TSMC, use little palladium, Reuters has reported. Additionally, neon and hexafluorobutadine — another gas used in chipmaking — are already stockpiled in Taiwan. The country also claims that its supply chain is diversified enough to withstand any region-specific shortages.

Malaysian chipmaker Unisem, which counts Apple as a customer, says it expects "no impact" because it doesn't source many materials from Russia and its machinery is mostly from the U.S., Japan, and other countries.

However, the race to find alternative sources could drive up prices of semiconductors and chipsets, which are still in relative short supply. And the longer the conflict in Ukraine lasts, the more likely it is to affect the world's chip supply.

It's not just iPhones

In the midst of a humanitarian crisis, there are bigger priorities than being able to buy a new iPhone or iPad. However, in the modern world, chips are critical to a staggering range of industries.

Western aerospace companies that produce commercial jets are facing uncertainty amid the conflict. Palladium is also used in the production of catalytic converters, which could snarl supplies of automobiles

Semiconductors, which require neon gas to produce, are also used in medical equipment like MRI machines, pacemakers, blood pressure monitors, and bedside patient monitors.

The future is also likely to be built on semiconductors. Battling climate change, for example, will likely rely heavily on technological solutions powered by chips. The same goes for smart cities, electric vehicles, and endeavors to bring internet access to unconnected communities across the globe.

Beyond the economic toll of the Ukraine-Russia crisis, however, there are the effects on people. At this point the human toll is already over a thousand casualties in the war and more than a million displaced people. Even as supply chain problems loom, it's crucial not to lose sight of the human toll of war.