"The effect of these sanctions, which are mind-numbingly shortsighted, is that they will actually have a very detrimental effect on energy prices, and not only energy prices, but food prices as well, which will precipitate a profound economic crisis in Europe, which is already in a crisis", says Alex Krainer, founder of Krainer Analytics and creator of I-System Trend Following. "It will exacerbate inflationary pressures throughout Western economies. They will hurt not only Russia, they will also hurt the working people of Western Europe and the United States, and particularly small businesses and medium-sized businesses, which is the main economic engine".
On 24 February, the EU took aim at Russia's transport and energy sectors, 70% of the Russian banking market and key state owned companies, including in defence. The White House targeted Russia's financial and technological sectors, cut off Russia's access to high-tech imports and froze assets from four major Russian banks, among other measures. Nevertheless, the US and the EU fell short of severing Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) as Washington and Brussels had earlier threatened.
Since 2014, Washington and Brussels have progressively imposed restrictive measures against Moscow following Crimea's reunification with Russia in the wake of the illegitimate 2014 coup d'etat in Ukraine.
Prior to Thursday's batch of restrictions, the US and its European partners introduced a limited package of sanctions over
Russia's recognition of the Donetsk and Lugansk People's Republics (DPR and LPR), with the US barring Nord Stream AG, a company operating Nord Stream 2 pipeline.
According to Krainer, the restrictive measures imposed by Washington and Brussels have already backfired. In particular, the economist says that the oil traders are apparently having difficulty financing oil cargoes from Russia, which is normally done by means of letters of credit.
Germany's decision to freeze Nord Stream 2 earlier this week is also a massive problem for Europe, since European natural gas reserves are at record lows, according to the economic expert. Russian gas is crucial for heating of European households and European industries, he says. In particular, food supply and food production may suffer: "Natural gas is one of the most important ingredients in producing artificial fertilisers", Krainer says. "And so this will inevitably impact food prices."
While Russia's energy supplies
account for more than 40% of the EU gas needs and 27% of crude oil, the US imports, on average, more than 100,000 barrels per day. "If [the US] do[oes] not receive that, it will be felt in the markets", Krainer warns, stressing that crude prices have already mounted to over $105 per barrel.
Sanctions could trigger a devastating domino effect as soaring gas and oil prices are likely to accelerate already soaring inflation caused by the COVID pandemic and disrupted supply chains, according to the economic expert. "I think that inflation could explode in Europe, but also in the United States", says Krainer.
As of January 2022, the
annual inflation rate rose to 7.5% in the US, the highest since February of 1982, while 19 Eurozone countries saw consumer prices increase by an annual 5.1%. The states that will suffer the most are Germany, France, and the United Kingdom, according to the expert.
Meanwhile, one should bear in mind that Russia may introduce counter-sanctions, which will make matters even worse for the EU and the US, Krainer notes.
Atkinson stresses that the world economy is very fragile after the COVID shut downs, which would make trade embargoes on Russia nothing short of a self-inflicted disaster.