Could sanctions against Russia boomerang back on Americans?
The sweeping U.S. and European sanctions on Russia are rippling to American consumers, investors and businesses as they drive up gasoline prices and make it difficult for American companies to do business with Russia.
Beyond higher oil and gasoline costs – which mostly have been stoked by fear rather than sanctions – the impact in the USA is likely to be limited, experts say.
U.S. exports to Russia total $6 billion, according to Wells Fargo, a rounding error for the $24 trillion U.S. economy. U.S. banks are owed $14.7 billion by Russian banks, amounting to 0.7% of their core capital, according to Pantheon Macroeconomics.
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Why are sanctions imposed on Russia?
Sanctions against Russia’s largest banks are aimed at severing that nation’s ties to the global financial system and preventing it from raising capital to finance its war against Ukraine.
Other penalties target Russian oligarchs; keep Russia from importing high-tech parts used in smartphones, airplanes and cars; cut Russian banks from the SWIFT global financial messaging system; and isolate the country’s central bank so it can’t support the ruble with its $600 billion in reserves.
The United States and Europe insulated Russia’s oil and natural gas exports from sanctions to hold down inflation for consumers. Russia supplies about 30% of Europe’s oil and 40% of its natural gas. The financial system constraints on Russia are probably having a modest effect on oil exports, says Jaime Peters, assistant dean of accounting, finance and economics at Maryville University in St. Louis.
Worries that the sanctions eventually will include oil – or that Russia could retaliate by withholding oil – have propelled crude and gasoline prices far higher. West Texas Intermediate, the U.S. benchmark, has climbed $10 to $20 this year because of the conflict, says Tom Kloza, chief global analyst for the Oil Price Information Service. Oil closed up more than 4% Monday at $95.82.
What will gas prices be?
The average unleaded gasoline price hit $3.61 Monday, up from $3.36 a month ago, according to AAA’s fuel gauge. The Russia-Ukraine conflict is likely to push gas prices above $4 a gallon by spring, Kloza says.
Similar concerns could drive up the price of wheat. Russia is the world’s largest wheat exporter.
Higher energy and other commodity prices are rocking the U.S. stock market because they could worsen inflation, possibly prompting the Federal Reserve to raise interest more sharply and hurting corporate earnings. All of that could batter consumers' outlook and spending as well as business confidence, investment and hiring.
Other impacts of the sanctions in the USA:
How sanctions could impact investors
Potential future sanctions could bar U.S. financial institutions from trading in Russian debt or require them to divest those holdings, according to the Institute of International Finance. They may be unable to find a buyer because of the sanctions and might have to write off their holdings, hurting clients that include pension funds and mutual funds.
That could indirectly affect individual investors, but most diversified mutual funds probably have just a small investment in Russian assets, says Doreen Edelman, chair of the global trade and national security practice for law firm Lowenstein Sandler.
How will sanctions impact consumers?
The sanctions raise the risk that Russia will retaliate with cybersecurity attacks. That could prompt a wide variety of U.S. financial, social media and other companies to take precautions, such as asking users to change their password or take other steps to safeguard their data, Peters says.
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How sanctions will impact businesses
Many U.S. businesses sell lumber, batteries, snowblowers, tractors and myriad other products to companies in Russia. The sanctions ban seven types of products from such sales – aerospace; electronics; computers; telecommunication and information security; lasers and sensors; navigation and avionics; and marine equipment.
It may be too cumbersome even for companies selling other products to convert rubles to dollars to complete financial transactions without running afoul of the sanctions, says Larry Ward, partner in Dorsey & Whitney, an international law firm.
“They need to take a really hard look at what business they’re doing in Russia,” he says. For some, “the opportunity is just not worth it.”
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Some of the nation’s high-tech giants, including Microsoft, Google, Apple and Amazon, could be affected, Ward says.
Many U.S. businesses, including consultants, are “probably going to have trouble getting paid,” Edelman says. Some global companies may try to channel products or services through non-U.S.-related third parties, she says.
For the majority of American companies, sales to Russia probably make up a small portion of their revenue, Edelman and Ward say.
Contributing: The Associated Press