Invasion of Ukraine by Russia: impact on the American economy
(The hill) – A possible Russian invasion of Ukraine could negatively impact the wallet of the average American, who is already facing higher prices and rising inflation.
Moscow’s slashing has led to moves to impose financial and economic sanctions, but a full-scale incursion could reverberate in markets around the world, including for American voters.
Trade between the United States and Russia totaled just $35 billion in 2019, according to White House data, 16 times smaller than the value of US-China trade the following year. Russia is only the 20th largest supplier of US goods imports and the 40th largest export market for US producers.
Even so, Russia is a major source of US energy imports and a key supplier for European nations that may rely more on America to offset Russia’s unavailable fuel in the event of war.
Russia was the third-largest foreign oil supplier to the United States in 2020, according to the US Energy Information Administration, responsible for 7% of imported oil. Russia also exported $13 billion worth of mineral fuels to the United States the previous year, more than half of all goods sent to America.
Experts point to changes in oil prices as the first tangible effect that could be seen in the United States if Russia invades Ukraine.
“Given that energy costs are a major driver of inflation – and in themselves they have risen quite significantly since then. Joe Biden took office – I don’t think people should quickly discount the potential impact on the kitchen table of a Russian invasion of Ukraine with a potential large increase in energy prices,” said Eric Ueland, former Under-Secretary of State for Civil Security, Democracy and Human Rights under President Trump.
Oil prices have risen significantly in 2021 as the rapid recovery from the coronavirus recession fueled an increase in consumer demand for goods and travel. While oil prices fell sharply at the height of the pandemic in 2020, the rapid rebound has driven consumer costs up at staggering annual rates.
Energy prices rose 29.3% a year in December, according to the Labor Department’s Consumer Price Index (CPI), a closely watched gauge of inflation. Gasoline and heating oil prices increased by 49.6% and 41%, respectively, and electricity prices increased by 10.4%.
Sanctions against Russia’s energy sector could spill over into global markets and drive up costs for consumers even further.
“Oil prices can certainly be impacted globally as Russia tries to figure out what its leverage points are going forward. They may choose to increase some exports to people who are more forgiving of what they They already have a lot of natural resource exports to China and elsewhere,” said Michael Allen, special assistant to former President George W. Bush on the National Security Council.
The White House characterized the economic consequences against Russia as an important lever during negotiations on the escalation of tensions around Ukraine.
Meanwhile, a bipartisan group of senators are negotiating Russian sanctions legislation, and the two areas unresolved on Tuesday were sanctions related to the Nord Stream 2 pipeline, which will carry gas to Germany from Russia, and the timing of economic sanctions in general. .
“What does this mean for kitchen table discussions in the United States?” asked Heidi Crebo-Rediker, deputy senior fellow at the Council on Foreign Relations. “As it gets worse, [Russian President Vladimir] Putin is shaking the geopolitical fabric to try to get what he wants, and if we end up having greater disruption because of US and European sanctions against Russia, then the most immediate economic translation will be through the channels of commodity prices and in particular oil prices,” she said. noted.
On Wednesday, the Pentagon decided to deploy and reposition more than 3,000 troops to bolster Eastern European allies as Russia amassed more than 100,000 troops near its border with Ukraine.
Worries about the economic fallout from an invasion have also rattled financial markets in recent weeks as investors deal with a wide range of threats from sky-high stock prices.
“I think there’s a potential immediate market reaction and then, depending on how it plays out, a potential market impact for some time to come,” Ueland said.
The United States has already imposed substantial sanctions and limits on the Russian financial sector, making a conflict-induced US financial crisis unlikely. But the toll of an invasion and tough sanctions could further upend global commodity markets and supply chains that rely on Russian exports.
“If the situation worsens, the ripple effects could be wider and impact global inflation expectations and monetary policy,” Anu Gaggar, global investment strategist for Commonwealth Financial Network, wrote in a statement. Wednesday analysis. “At a time when the world is facing rising energy prices and supply and demand imbalances in several metal and commodity markets, a steady supply of raw materials from Russia is crucial. .”
Charles Kupchan, who served as Senior Director for European Affairs at the National Security Council under the former president obamasaid an invasion would be “a big blow” with at least a spike in energy prices in Europe.
“If there were to be an immediate blowback for the US economy, it could come in the form of a stock market pullback linked to investor discomfort with geopolitical uncertainty and war. War in general is not good for business, but it’s really Europe that I think is facing some pretty big economic impacts,” he said.
Ueland noted that when Iraq invaded Kuwait in 1990, there was an immediate market reaction. The invasion caused stocks to plummet and oil prices to rise between August and October 1990 and helped cause a 21% drop in the Dow Jones Industrial Average.
Allen also argued that the markets would see movement if Putin chose to invade.
“If this really turns out to be the biggest ground war in Europe since World War II, there will definitely be market repercussions. We’ll just have to see, does Putin go all the way? How long does it take?” he said.
The Biden Administration would have spoken recently to the country’s largest banks, including Citigroup, Bank of America, JP Morgan Chase and Goldman Sachs, about possible sanctions against Russia. Only Citigroup has significant interests in Russia, with about $5.5 billion in loans, securities and other assets linked to the country, which equals 0.3% of its total assets.
“If Russia were to decide that these sanctions are the ultimate suspension or withdrawal from the international financial transaction system … and explore other ways to finance its operations, this could have impacts over time on the results of the individuals,” Ueland said.
Experts predict that a Russian invasion could make the country more dependent on China, especially if the Biden administration imposes restrictions on Russia’s purchase of technology from the United States.
Ueland argued that American policymakers should be concerned about Russia making financial decisions that could tie them more deeply to China and the effect that would have on individual American wallets.
“Because to the extent that Russia looks to China for further funding or financial support in the event of fairly aggressive Western sanctions, over time that will likely have some sort of impact on America’s economic health and on the economic health of Americans as well,” he said.
—Morgan Chalfant contributed to this report.