How the Russian Sanctions Will Affect the Global Economy

How the Russian Sanctions Will Affect the Global Economy

When Russian troops invaded Ukraine, many Western countries decided to enforce sanctions against the Russian economy.  Sanctions are penalties that usually target a country’s finances in an effort to penalize or disincentivize them from certain actions.  In this case, the United States and other allied countries chose to restrict dealings within the economy of Russia in hopes to aid Ukraine.  

Many countries have stopped Russian banks from making payments across international borders, in addition to freezing Russian foreign reserves in their jurisdictions.  The United States in particular has stepped up, as the U.S. dollar is the most commonly used currency in international transactions.  The United States has halted specific Russian imports and exports, and many countries based in the U.S. have stopped all operations in Russia.  

These sanctions have greatly damaged Russia’s finances, and experts predict their economy will contract up to 15% by 2022.  However, Russia is not the only country that has felt the effect of these sanctions.  With Russia being the world’s second largest producer of crude oil, gas prices across the globe have skyrocketed.  Here in the United States, prices reached an all-time high of an average $4.42 per gallon on May 12.  The international stock market also suffered, with April of 2022 being the worst month of April that the market had seen in decades.  

An unprecedented result of these sanctions is the extreme price changes in cryptocurrency.  Bitcoin dropped by 9% in the first week of the invasion, and then rebounded up by more than 10% in the following weeks.  While cryptocurrencies are quite volatile now, expect them to make a return and be used to influence the conflict in Ukraine, including incentives for Russian surrender and providing financial aid to Ukrainian troops.

financial war

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