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Food And Energy Prices ‘Likely To Surge Further’ Due To Sanctions On Russia

The United States on Thursday announced a new round of sanctions targeting Russian oligarchs and their family members who are supporting President Vladimir Putin as he wages war in Ukraine.

The new penalties include “full blocking sanctions” on at least eight so-called elites in the country and visa restrictions on 19 Russian oligarchs, their 47 family members and close associates, according to the Biden administration.

CNBC reported Thursday:

  • The Biden administration announced a new round of sanctions targeting Russian oligarchs and their family members who are supporting President Vladimir Putin as he wages war in Ukraine.
  • Asked at the White House about the expanded sanctions, press secretary Jen Psaki said that the U.S. was confident that these measures were an effective approach.
  • President Joe Biden said later Thursday afternoon that the sanctions already imposed on Putin and those around him have “had a profound impact.”

Sanctions on Russia will likely have a significant impact on the global economy, a recent ING (ING) report found.

“By now, we all know that Europe gets nearly 40% of its natural gas and 25% of its oil from Russia (this differs across countries), and is likely to be walloped with spikes in heating and gas bills, which are already soaring,” ING Global Head of Macro Carsten Brzeski wrote in a report released earlier this week. “Given that Ukraine and Russia have also been labelled as the global breadbasket, food prices are also likely to surge further. Both countries account for roughly a quarter of total global exports.”

The sanctions, however, were designed to punish Russia without tanking economies reliant on Russian commodities since Europe is heavily dependent on Russian gas for fuel for various energy expenditures such as heat and gas.

“The sanction response to the military escalation so far has been aggressive and generally coordinated, but careful not to disrupt Russia’s key commodity exports to the main partners,” Brzeski explained. “That is probably explained by Russia’s importance to the commodity and financial markets, and also by the necessity to leave room for additional pressure in case of further military escalation.”

Even so, these sanctions will have important implications for the global economy in the short run, and potentially the long run, too. With the costs of doing business increasing for many Russian institutions, certain sectors in the world economy reliant on Russian industry may also see higher prices for crucial goods. Perhaps the most potent effect that the sanctions will have on the global economy is a rise in energy prices. Russia is a powerful player in the energy sector, and several Western nations rely on Russian oil and gas.

Prices for oil and natural gas have spiked, fueling – no pun intended – higher gas prices for many in the US. Gas prices rose on average 8% during the past week alone, thanks in large part to the crisis in Ukraine.

This newest round of sanctions arrives in the context of a Western economy already suffering from widespread inflation, especially in the energy and gas sectors. In 2019, Russia provided over 40% of gas exports to the European continent. With some of these Russian businesses compromised by sanctions, higher prices in the energy sector will likely continue to push up global inflation.

Russia is a major producer of palladium, which is used in automotive production, mobile phones and even dental fillings, according to the report. Russia produces about 6% of the world’s supply of aluminum, which saw its price spike to a record high on Monday in response to the sanctions.

“The world, and particularly Europe, could be facing severe supply disruptions, undermining the industrial rebound and also the private consumption rebound expected with the end of the Omicron restrictions. Globally, a surge in commodity prices will aggravate already existing inflationary pressures,” Brzeski wrote.

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