Efforts to decimate Russia’s economy to punish Moscow for its invasion of Ukraine could have serious and unpredictable implications at home for the U.S. and its allies.
The Russian economy has begun to crumble after the U.S., United Kingdom, European Union and other partners imposed unprecedented sanctions with stunning speed.
The Russian government and major financial firms have been cut off from much of the global financial system, dozens of international companies have pulled out of the country, and the value of the ruble has plunged as the Russian central bank scrambles to prevent a deeper crisis.
“The United States and Europeans are explicitly stating that they’re engaging in economic warfare with Russia,” said Daniel Glaser, former Treasury assistant secretary for financial crimes, during a Thursday webinar hosted by compliance firm K2 Integrity.
“Normally when you hear the U.S. and Europeans talk about the application of sanctions, you hear a lot about how targeted they want it to be,” he continued. “I’m not saying that the U.S. and Europeans don’t care about collateral damage, but that’s not the talking point that they’re using. The talking point that they’re using is how much pain they’re trying to inflict on Russia, and it’s just jaw-dropping.”
The sanctions regime is designed to not only hinder the Russian economy but also limit Moscow’s ability to ease the economic pain. The U.S. and its allies blocked transactions with the Central Bank of Russia and froze about half of the $600 billion in Russia’s foreign reserves, which Moscow had parked in other countries. The moved locked up what experts called Putin’s sanctions war chest.
The threat of future penalties has also prompted a mass exodus of international companies from Russia. Dozens of companies that may be able to operate outside of sanctions are leaving Russia instead of risking blowback from the U.S. government and losing access to the American dollar.
“There are certain tools they can use to manage,” said Rachel Ziemba, founder of macroeconomic advisory firm Ziemba Insights, of the Russian government.
“They’re headed toward, yes, a recession but a much more internally focused economy that basically takes all the reforms over the last couple of decades and almost does the reverse,” she added.
Even so, mounting economic pain at home hasn’t curbed Putin’s military ambitions in Ukraine.
Russian forces claimed to take control of the Zaporizhzhia nuclear power plant overnight in Ukraine, prompting deep concern among U.S. officials. The attack on the plant, which sparked a fire overnight, drew widespread panic and fueled calls among U.S. lawmakers to take more aggressive action against Putin’s regime.
The U.S. is a net exporter of oil, but higher demand for American crude would push up energy prices globally as European allies scramble to replace Russian petroleum and natural gas.
While Biden has sought to prepare Americans for potential economic fallout at home, experts say the unprecedented nature of the penalties creates unpredictable risks for the U.S. economy.
Energy and food prices are the quickest way Americans could feel shockwaves from Russia’s decline, particularly if Biden takes action against Russian oil imports.
Crude oil prices are up roughly 20 percent over the past two weeks, enough to knock 0.2 percentage points from U.S. gross domestic product, according to economists at Goldman Sachs.
They also expect inflation as measured by the personal consumption expenditures price index to 0.2 percentage points thanks to “higher food prices, increased production costs due to rising commodity prices and increased transport costs due to shipping disruptions.”
Ziemba said a ban on Russian oil imports would largely be “symbolic” and simply send barrels to other markets.
“When we’re thinking of the cost-benefit analysis, it’s not clear to me that the pain here justifies the pain to Russia,” she said.
But Ziemba said lifting current exemptions for processing energy-related payments could strike a devastating blow to Russia’s energy industry. If U.S. firms and the U.S. dollar can no longer be used to buy Russian oil and gas, Ziemba said foreign firms would likely ditch Russia to protect their access to American markets.
“If there’s a situation where Russian entities can’t be paid for the oil and the gas they are producing, they’re not going to give the supplies away for free,” Ziemba said.
“As the price adjusts, it would be very painful,” she added.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets also climbed higher.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
This report by The Canadian Press was first published Sept. 13, 2024.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in the base metal and energy sectors, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 172.18 points at 23,383.35.
In New York, the Dow Jones industrial average was down 34.99 points at 40,826.72. The S&P 500 index was up 10.56 points at 5,564.69, while the Nasdaq composite was up 74.84 points at 17,470.37.
The Canadian dollar traded for 73.55 cents US compared with 73.59 cents US on Wednesday.
The October crude oil contract was up $2.00 at US$69.31 per barrel and the October natural gas contract was up five cents at US$2.32 per mmBTU.
The December gold contract was up US$40.00 at US$2,582.40 an ounce and the December copper contract was up six cents at US$4.20 a pound.
This report by The Canadian Press was first published Sept. 12, 2024.
