How Russian Sanctions Are Affecting The Global Economy

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Russian Sanctions

In the wake of the invasion into Ukraine, many Western countries including the United States enacted sanctions on Russia’s economy. Sanctions are financial restrictions placed upon a specific country used as a non-military option to influence global political events. In Russia’s case, these restrictions include blocking Russian banks from making international payments, and freezing Russian reserves in foreign countries.

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Aside from the sanctions agreed upon by Western allied countries, the United States in particular cracked down on their financial dealings with Russia. They have restricted purchases of Russian bonds, and banned Russia’s largest bank (Sberbank) from most transactions involving U.S. dollars. Furthermore, many U.S. companies have discontinued all operations in Russia, including Apple, Disney, and Microsoft. This is especially impactful to the Russian economy, as the U.S. dollar is used in 50% of all international trade, and about half of all global bonds and loans must be paid in U.S. dollars.

The United States also banned certain military technology exports to Russia and Belarus, and banned all imports of gas and oil from Russia, which was previously the world’s second largest producer of crude oil. As a result, gas prices in the United States have skyrocketed, reaching an all-time high of an average $4.42 per gallon on May 12.

The Prolonged Effects Of The Sanctions

These sanctions have other prolonged effects felt across the globe, most prominently being the stock market. When relations between countries falter, so does international trade. April of this year was the worst month of April that the stock market had seen in decades. In that month alone, Nasdaq dropped 4.2%, S&P went down by 9.1%, and Dow dipped by 2.8%.

Russian cryptocurrency Ruble dropped by 30% when sanctions were announced, spurring a run on the banks. As a result, Russian citizens turned to gold and other precious metals for financial stability. This increased the price of gold across the globe, hitting an 8-month high in March of 2022. Crypto in the U.S. also suffered, with Bitcoin dropping 9% in the first week of the sanctions. Thankfully, both Bitcoin and Ruble prices made a recovery, and experts predict cryptocurrencies to be used as an incentive for Russian surrender and to provide financial aid to Ukraine.

The only question that remains is how long these sanctions will be in effect, and how much longer the global economy will suffer as a result. While Russia has made strides to boost their internal economy, including raising interest rates and exchanging U.S. dollars for Ruble, these can only be temporary measures. Experts predict that if the current sanctions continue, Russia’s economy will contract up to 15% in 2022.

Russian Sanctions

Source: USGoldBureau.com

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