Russia’s Choices and International Consequences
In the waning days of February 2022, Russia declared war on Ukraine. Swift in its rebuke and response, the international community instituted financial sanctions, trade bans, airline bans, suspension of the Nord Stream 2 pipeline to Germany, and measures to isolate Russian banks.
The actions against Russian act as motivators to evacuate Ukraine and avoid further conflict. Unfortunately, as President Biden expressed in his first State of the Union address, the necessary sanctions and actions will affect the global economy. Russia is a significant economic player, and targeting its internal economy will have international repercussions.
Sanctions, Isolation, and Turbulence
The sanctions are doing their job. Russia's economic isolation has begun. The ruble is plunging, forcing the Bank of Russia to double its rate to 20% in an attempt to control the evolving damage.
The country's central bank was also forced to release nearly $7 billion in bank reserves to protect against the sanctions of governments in Europe and the United States. The bank reserves were initially intended to buffer unsecured mortgage and consumer loans.
In the grand scheme of things, the early stages of Russian isolation are effective. Unfortunately, as predicted, the markets are also responding. As March began, Wall Street Stock prices fell, and commodity prices rose. The S&P 500 is experiencing drops of as much as 1.5 percent, and Stoxx Europe 600 has also experienced downward momentum.
SWIFT and Impending Inflation
The European Commission, Britain, Canada, and the U.S. also agreed to remove select Russian banks from SWIFT — an international system of payments. The move, a sudden and impactful escalation of financial penalties on the country, will bar the Russian banks from international transactions.
While a justifiable action, many investors worry about the local and global ramifications of the decision. The measure's purpose was to disrupt Russia's local economy, targeting its exports. Still, two of the primary commodities coming out of Russia include wheat and oil. Therefore, the newest action against the country will have a global impact, resulting in greater inflation.
Wall Street Banks, The Stock Exchange, and Treasury Notes
Many banks are taking significant hits with all of the current news about sanctions and financial actions. Several Wall Street powerhouses, such as Goldman Sachs, Citigroup, and JPMorgan Chase, experienced substantial dips in the S&P 500, with Citigroup showing a 4.4% drop.
The New York Stock Exchange and Nasdaq took swift action on Monday, February 28, 2022, halting the trading of shares from several Russian companies, including Yandex and Mechel PAO. However, a halt is different from a delisting or suspension. Halting trades means the exchange is gathering information about current events and their impact on a company.
Finally, the surge of investor interest and bids during the initial days of the Ukraine crisis resulted in a trend reversal for the 10-Year Treasury note. The notes have been experiencing a steady rise, demonstrating a financial haven against inflation and crises, but the increased bids decreased the notes by 13 basis points.
The U.S. and international sanctions imposed on Russia are a necessary deterrent. However, there is no telling Russia's resolve and commitment to the conflict with Ukraine. In the meantime, international citizens need to come together and brace for the potential economic effects. At this time, it is vital to remember that Russia is the aggressor and Ukraine is the victim. The international community is doing its best to apply pressure without further military escalation and sacrifice.