The American public is all too aware of Russian military activity in Ukraine and the potential for a broader armed conflict, echoing similar circumstances of the Cold War. The chain of events leading to Russia’s current position have posed an eerily identical sequence of policy maneuvers: The stationing of missiles in Poland and Romania are reminiscent of the nuclear deployments by the United States in Turkey in 1959.
The fight for Russia’s personal security has ejected the country from a large part of international commerce. Putin’s cold consistency in promising military action if NATO continues to expand into former Eastern Bloc territories makes one wonder if Western policy decisions are ultimately at the cost of the suffering of Russian and Ukrainian people, and to an extent, domestic economic hardship.
Presently, Russia is experiencing an economic Chernobyl. The ruble is nose diving and the government is trying to mitigate the threats of crippling bank runs. Furthermore, Visa and Mastercard have announced their termination of their operation in Russia. Sanctions continue to mount as NATO allies are looking for more routes to damage Russian financial institutions and economic figureheads. Though the Russian government itself is not being explicitly targeted, the restrictions on exports and financial institutions are a de facto ban on Russia.
Treasury Secretary Janet Yellen said 80% of Russian bank assets are under the department’s restrictions, and half of Russia’s central bank assets have been immobilized. The strategy is to cut off Russian centers of money that are concentrated in small circles of elites and institutions to undermine the oligarchic power structure within Russia.
On Wednesday, the U.S. put Russia’s oil and banks in its iron sights, along with “wide restrictions on semiconductors, telecommunication, encryption security, lasers, sensors, navigation, avionics and maritime technologies,” as stated by the White House. Russian banks have been barred from SWIFT, the Society of Worldwide Interbank Financial Telecommunication, a crucial network for international banking. Though not necessary for international trade, the service is its primary mode of operation.
At home, the largest impact Americans will feel is the rising prices of commodities, namely gas and food. Low income consumers are being affected the most, and there is imminent potential to draw larger impacts on the middle class. As with oil, wheat sees similar sharp price increases. Ukraine is a top exporter of wheat, and the war has caused wheat futures to skyrocket, leading to a higher cost of wheat-based products.
The impacts in Western Europe are much heavier. The EU depends significantly more on Russian oil, gas and fuel than the U.S. Although the large oil divestments have been harmful, optimistically, a new opportunity arises for governments to direct investments into the expansion of green energy. In Germany, recent legislation has been passed to significantly increase the amount of green energy to ease its dependence on Russian fuel which conveniently helps accelerate climate goals. The conflict has overturned the large dependence on Russian fuel products and has made apparent the imminent need for local green energy sources with decreases in international oil imports.
The current military doctrine is financial. The U.S. and the EU are first preparing for trench warfare, slowly suffocating the Russian economy. In a war of resource attrition, energy will be the ultimate determinant of success during the conflict and after.
In China, outcomes may be promising. Though the One-China policy is fundamental in Chinese policy and there is sympathy for China’s struggle against Western interference in Hong Kong and Taiwan, the present motivations of China are to seek stability internationally. In an economy that is still recovering, China desires for tensions to cool off rather than acting impulsively on its imperial motives.
The future of our economy and state of living revolves strongly in the policies and political decisions involving the Russo-Ukrainian conflict. U.S. and European leaders must make the best decisions they can as our economic standing is currently exposed and volatile, with looming threats of recession and economic confusion in the U.S. and abroad.