When Russia invaded Ukraine last February, the US and its allies launched unprecedented sanctions against Russia in retaliation. Russian banks were excluded from cross-border payment systems and transactions with US dollars. US companies are barred from exporting intelligence services, defense items, and oil-drilling components to Russia and Belarus. The US has already banned imports on Russian oil, and the UK and EU are following suit.
While past sanctions targeted the Kremlin specifically, this round is aimed at the broader Russian economy. If sanctions continue, projections estimate Russia’s economy will contract by 15% in 2022. US sanctions are particularly lethal because 90% of all currency trades involve US dollars. Half of all international trade is done in our currency, and half of the world’s global bonds and loans must be paid in USD. Over the past 3 decades, Russia has become deeply integrated into global markets. Their sudden economic isolation will have consequences around the world.
What does the financial war on Russia mean for consumers? In the US, bans of Russian oil are partially behind the rise in gas prices. That’s because Russia is the 2nd largest producer of crude oil in the world, and much of their oil is off the market. As of May 12, the average price for a gallon of gas was $4.42. The war in Ukraine has also raised grain prices by 14%, causing many food prices to spike. Financial markets are also in a state of uncertainty, as seen in April’s severe declines.