Why sanctions don't hurt US

YURI VANETIK, private investor, lawyer and political strategist based in California

Since Russia invaded Ukraine, the West has quickly rallied against Putin with unprecedented economic sanctions. Among these are measures to ban new investments and the sanctioning of Alfa Bank and Sberbank, two Russian financial giants.

When sanctions were first imposed, the ruble weakened to an all-time low against the dollar, and scenes of Russians queuing up for ATMs demonstrated the impact of these weapons of modern warfare.

It’s not just Russia feeling the pinch — yet. Recently the ruble went up, and Russia’s energy sector continues to generate huge revenue.

These punitive economic measures have caused discernible ripple effects across the globe. Some western economists have considered whether sanctions on Russia also hurt America’s economy.

Russian propaganda machine claims that the sanctions will backfire, damaging Europe’s and America’s markets. A tangible impact of these sanctions will be on the cost and availability of certain goods, in particular foodstuffs.

Andrew Milligan, formerly of the U.K.’s Treasury describes both Russia and Ukraine as "global breadbaskets," given that their combined wheat exports makes up 29% of the global export market. Nitrogen-based plant fertilizer is also a key export from Russia, leading to an expected rise in its cost by around 12%.

Notwithstanding, the U.S. is well positioned to deal with blowback from Russia’s escalating economic isolation. As the country is a net exporter of many food commodities in short supply across the globe, there is potential for American farmers to take advantage of increased prices.

Looking more globally, supply issues may hurt Middle Eastern countries and have humanitarian consequences, and the U.S. will endeavor to support these from its comparatively safe position.

In imposing sanctions to support Ukraine, we have essentially unplugged Russia, one of the world's larger economies, from the rest of the globe.

This is not without consequence, particularly in relation to oil and gas. Being the world’s largest exporter of natural gas and not far behind on oil and coal, turning away from Russia is sending shockwaves across Europe’s economies.

Although initial sanctions did not restrict exports, efforts to reduce dependency on Russian commodities exacerbate existing supply issues. This is coupled with the fact that freezing the assets of Russia’s Central Bank could spark Russia to cut energy exports in retaliation.

President Biden’s chair of Council of Economic Advisers, Cecilia Rose, concurs that the biggest impact of this war on America will be the increase in gas prices. Prices have spiked since sanctions were introduced.

Whilst this is ostensibly worrying, it is important to recognize that it is the conflation of pre-existing (COVID induced) supply issues and the impact of the war that is causing such inflation.

Energy prices were already soaring before sanctions were imposed because of labor and supply shortages. So much so, that pre-war, the Biden administration was already toying with releasing emergency stockpiles.

The sanctions regime has illuminated a longer term need to invest in infrastructure and encourage self-sufficiency in the energy sector.

For example, the U.S. imports only around 8% of its oil from Russia and is a net exporter of energy; ergo, it will ultimately stand to benefit from increasing prices.

Trickle-down impact from sanctions is a concern in the U.S. Nevertheless, the U.S. economy is in a strong position, particularly in contrast to its global allies and fellow «sanctioners».

The U.S. is also likely to benefit from the diversion of foreign cash from Russia to other markets, demonstrated by the fact that the dollar index has increased by almost 3% since the end of February.

Set against the relative vulnerability of Europe, the harm to the U.S. economy will likely not have major impact. Despite the relative size of their two economies, trade between Russia and the U.S. is actually minimal.

A further opportunity for economic growth that could be in the pipeline is the potential prosperity of the security sector. This is evidenced by the surge in defense stocks following Russia’s invasion, when markets on the whole fell. Thus, the tumultuous events of the past months are likely to catalyze a boom in these sectors in the U.S.

America has a robust, productive economy, and is not tethered to Russia in the same way that its European counterparts are. Ultimately, America can be proud that its efforts to battle the harrowing humanitarian crimes inflicted by Russia on Ukraine’s civilians should not disrupt its own economy.


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