How Sanctions Against Russia Affect the US Economy

When Russia threatened world peace and invaded Ukraine, the United States and allied countries declared a financial war on Russia.  These reactions came in the form of sanctions, which are non-violent options to influence or penalize the actions of a certain country.  To understand what these sanctions mean for the global economy, let’s analyze what specific restrictions have been put in place.  

The United States, European Commission, France, Germany, Italy, the United Kingdom, and Canada removed Russian banks from SWIFT.  SWIFT is a system used internationally by banks for cross-border payments.  Additionally, those countries have frozen Russian foreign reserves in their jurisdictions, a reported amount of $630 billion. 

The United States in particular has stepped up on their sanctions regarding financial transactions with Russian entities.  They have restricted U.S. based purchases of Russian bonds, and banned Russia’s largest bank (Sberbank) from most transactions involving U.S. dollars.  The United States also banned technology exports to Russia and Belarus that would aid them in the conflict in Ukraine, and banned all imports of gas and oil from Russia.  Furthermore, many U.S. companies have halted all operations in Russia, including Apple, Disney, and Microsoft.  

The sanctions imposed by the United States are especially important, 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.  If sanctions continue, projections estimate Russia’s economy will contract up to 15% by 2022.  But Russia is deeply integrated into the global market, meaning that these sanctions won’t just penalize Russia’s economy, but will have an impact felt across the world. 

The most obvious of these effects is on the global stock market.  This April of 2022 was the worst month of April that the stock market had seen in decades.  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. 

Bitcoin also dropped by 9% immediately after sanctions were enforced, affecting crypto prices across the globe.  Thankfully, both Ruble and Bitcoin rebounded to numbers similar to the prices seen before the start of the conflict in Ukraine.  Though crypto experienced a phase of inconsistency, experts predict it will make a rebound and be utilized in the Russia/Ukraine conflict.  Possible uses include providing financial aid to Ukraine, and providing financial incentives for Russian surrender.  

With Russia and Ukraine locked in conflict, they cannot provide the world with the resources they used to supply.  For Ukraine, that resource is grain, which has spiked the cost of grain and wheat products for consumers.  Russia is the world’s second largest producer of crude oil, which has obviously skyrocketed the price of gasoline.  In the United States, prices reached an all-time high of an average $4.42 per gallon on May 12.