What effects would Western sanctions on Russia have on the global economy

The sanctions imposed on Russia are intended to affect the conduct of the state through fear and coercion. Some of them, by accident or design, also attack the financial links that allow individual oligarchs to store and use their wealth in the West. The Biden administration, which has identified autocratic corruption as a primary policy target, is likely to be able to use these new sanctions to develop a new strategic approach to sanctions policy. In a study by Nicholas Mulder (a historian of 20th century European and international history), "The Economic Weapon: The Rise of Sanctions as a Tool of Modern War", the ideas imply that, to produce better results, sanctions should be used largely to discipline foreign banks and others who otherwise have good reason to foment economic evils. The United States would not target illiberal regimes but liberal financial institutions that help spread illiberalism.

As Russia manages the situation to protect its economy from the impact of Western sanctions, countries around the world are beginning to feel the effects of these sanctions. Economists warn of a looming global recession as financial turmoil worsens. The World Bank says Western sanctions on Russia will have a bigger impact on global GDP than the conflict in Ukraine itself. The International Monetary Fund (IMF) has also warned of a "serious impact" on the global economy and financial markets, saying sanctions against Russia will have a major impact on many countries.

According to an analysis by the German Kiel Institute, almost all economies are already seeing a reduction in international trade due to the disruptions triggered by the conflict in Ukraine and the subsequent economic sanctions. International trade has only recently begun to recover from the pandemic-related downturn that began in 2020, only to be hit again later. The China-Europe rail freight route, which passes through Russia, saw an increase last year due to congestion at major ports, but is now seeing an increase in cancellations from European customers. Analysts say Russia's sanctions are wreaking havoc on global trade, with disastrous effects for international importers.

Many prime movers and mass carriers have been diverted from Black Sea ports in Russia and Ukraine. As a result of the sanctions, transporters are stuck in ports and at sea, unable to unload their cargoes. The COVID-19 pandemic has already disrupted global supply networks that have existed for decades, causing major shortages, disruptions, and price inflation. Experts say the Ukraine crisis and sanctions pressures could have an "earthquake like never before" effect on global trade in goods and services that will never be the same.

The livelihoods of millions of people could be threatened by the conflict and Western sanctions. Food prices, which had been rising since the second half of 2020, hit a record high in February 2022 due to strong demand, input and transport costs and port disruptions. The Food and Agriculture Organization of the United Nations warned last week that the current scenario could lead to global food shortages, as Russia and Ukraine play a major role in global food production and supply.

According to UN data, world wheat and barley prices have increased by 31% between 2021 and 2022. Rapeseed and sunflower oil prices have increased by more than 60%. Fertilizer prices have increased due to strong demand and unpredictable natural gas prices.

Analysts predict that as the United States and Europe toughen sanctions on Russia, Western consumers will soon face rising commodity prices. The price pressures come at a time when the rate of inflation in the United States is already approaching its highest level in four decades. Russia is a major supplier of raw materials such as grain, crude oil, natural gas, coal, all metals, minerals, rare earths, wood and plastics, which are used in a variety of products and companies ranging from steel to automakers. and electronics manufacturers. Western sanctions have already driven commodity prices to record highs. Rising energy prices have hurt consumers and households around the world. Despite the release of strategic reserves by several countries, analysts warn that spending could soon reach unsustainable levels.

Russia has warned that the sanctions imposed on its country will spread throughout the West and around the world. This would manifest in a variety of ways, including rising food and energy prices. Russia also began to impose countersanctions against the West, continuing to ban deliveries of telecommunications, medical, automotive, agricultural, electrical, and technological equipment, among other products, until the end of 2022 and US President Joe Biden, Canadian Prime Minister Justin Trudeau and a dozen other senior US officials were placed on a "ban list" barring them from entering the country. Besides Biden, the list also included Defense Secretary Lloyd Austin, CIA Director William Burns and National Security Advisor Jake Sullivan. This is something the West would not have expected. Apart from that, the export suspension list includes around 200 products in total, including railcars, containers, turbines, and other goods. If Russia decides to cut off oil and gas supplies to Europe, energy prices will skyrocket, and the region's economy will collapse.

Worried investors have started hoarding cash due to recession fears, according to new research from Bank of America (BofA). Global growth estimates among fund managers are at their lowest level in 14 years, according to BofA chief investment strategist Michael Hartnett. The majority of respondents believe that inflation will be "permanent".

In terms of dangers, the situation between Russia and Ukraine is considered the most significant "tail risk" for the markets, followed closely by a global recession. According to economists, inflationary pressures were already mounting before the crisis. Soaring oil and gas prices have sounded the recession alarm all over the world. And the US economy has now started flashing a recession warning light.

Apparently, the West's heightened focus on Russia and Ukraine could provide China with more leeway to engage in assertive moves in the Indo-Pacific, increasing tensions with the United States. China and Russia are likely to step up their hybrid warfare, especially cyberattacks, threatening essential services and facilities in Western countries and interfering with their elections.

Due to the Russian invasion of Ukraine and the resulting Western sanctions, Europe will have to pay higher oil and gas prices. However, higher prices will eventually spur additional production to ease upward price pressures. If Europe seizes this opportunity to truly diversify its energy supplies, it will be able to protect itself from future shocks anticipated by the Kremlin.

Sanctions would bring down economies all throughout the world, not just Russia and Ukraine. Dependent countries, such as Sri Lanka, are already feeling the brunt of the effects. It is the world's superpowers' obligation to reduce the damage and balance the economy. Otherwise, the world faces two threats: the use of nuclear weapons to cause mass disruption and the collapse of markets.