Skyrocketing Consumer Prices: Can Russia Be Excluded From the Global Economy?  (INFOGRAPHIC)

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Brian Wallace, Founder & President, NowSourcing

A financial war against Russia has begun across the world with the launch of a series of sanctions that have never been applied before. Countries like the U.S., France, Germany, and Canada have all removed Russian banks from Swift while also freezing Russian foreign reserves in their jurisdictions. The U.S. has put sanctions on Russian sovereign debt and banks as well as imposed restrictions on exporting technology that could aid intelligence services and oil drilling to Russia and Belarus.

One of the biggest bans the U.S. has put on Russian imports involves oil and natural gas. In fact, if the EU joins in banning Russian energy imports, Russia’s economy could see a decrease of more than 20% in 2022. These sanctions have been noticeably different from previous sanctions due to them being levied on entities that were once considered out-of-bounds to hurt the broader Russian economy. 

Several U.S. companies have suspended operations in Russia, including McDonald’s, Coca Cola, and Microsoft. Apple and Google have tracked and stopped a loophole that allowed some Russians to keep using their payment apps even with the existing sanctions while BP announced that they will dump their 20% stake in Russian oil giant Rosneft. However, all of these actions are preventing U.S. companies attempting to still carry out business operations in Russia to send capital into the country or take profits out. 

With all of these sanctions imposed on Russia, how do they actually work? Sanctions are penalties typically put on a country’s or person’s economic situation. They can be used as a form of punishment or to disincentivize particular actions and can include travel bans, import/export controls, trade embargo, asset seizures, or capital controls. Sanctions are used to influence geopolitical events without the need to utilize the military, although sometimes they can be ineffective in carrying out their purpose. 

Compared to other countries, the U.S. has the most power when it comes to levying sanctions as 90% of all currency trades utilize dollars. In fact, half of international trade involves dollars. Nations throughout the world hold a portion of their foreign reserves in dollars, which helps provide the necessary jurisdiction to the U.S. to levy sanctions. 

In our world today, Russia is involved in many global markets, meaning that sudden economic isolation might have significant consequences around the world. The sanctions have blocked Russians from sending money abroad while halting interest payments to foreign holders of sovereign debt, but measures like these will be hard to sustain long term, especially with Russians turning to gold for economic benefit. 

With the Russian-Ukraine conflict currently in progress, the war will have significant consequences on our finances for the long run. These include rising gas and grain prices as Russia is the second largest producer of oil and one of the largest producers of wheat and grain in the world. Cryptocurrency also took a hit, but it is expected to rebound and be used in novel ways, such as being an incentive for Russian soldiers to surrender, becoming a direct way to financially support Ukrainian armies, and a possible workaround for Russians to get around sanctions. 

During these troubling economic times, investing in gold can be a low-risk investment to consider as a hedge against market uncertainty.

 

financial war
Source: USGoldBureau.com


Brian WallaceAbout the Author: Brian Wallace is the Founder and President of NowSourcing, an industry leading infographic design agency in Louisville, KY and Cincinnati, OH which works with companies ranging from startups to Fortune 500s. Brian runs #LinkedInLocal events, hosts the Next Action Podcast, and has been named a Google Small Business Adviser for 2016-present. Follow Brian Wallace on LinkedIn as well as Twitter.