Russia’s War on Ukraine: An Economic Explainer for U.S. Investors – Kiplinger’s Personal Finance

Russia’s invasion of Ukraine has roiled global markets. Inflation and the prospect of higher interest rates were already contributing to market volatility. Now, global sanctions and the day-to-day events in Ukraine have made navigating volatile markets even more difficult.

To understand what the war means globally as well as closer to home, it helps to take a broad perspective. The war in Ukraine is resulting in tragic loss of life and human suffering, as well as causing massive damage to Ukraine’s physical infrastructure. It has sent a wave of more than 1 million refugees to neighboring countries looking for housing, food and safety. Amid these ongoing tragic events unfolding in Ukraine, what is happening, and what are potential scenarios and market implications?

Why Sanctions and Not Miliary Action?

The United States, Europe, Canada, Britain, Japan and other countries have responded to the Ukraine invasion by immediately imposing unprecedented sanctions against Russia. Many countries have publicly stated that they do not want a war with Russia, and President Biden has consistently ruled out the deployment of U.S. troops to Ukraine: “Let me say it again: Our forces are not — and will not — be engaged in the conflict with Russia in Ukraine.”

There is a real concern that sending military forces to the region would risk additional escalation with one of the largest nuclear superpowers in the world. Neither the U.S. nor Russia can hope to “win” a nuclear war.

What Are the Goals of the Sanctions Being Imposed?

Throughout the current crisis, the Biden administration’s mantra has been “start high and stay high,” meaning that the level and impact of the sanctions should be high right from the start. As a result, these are the strongest sanctions ever levied against Russia. 

The U.S. and European allies realize that they will not immediately stop the war. According to Andrea Kendall-Taylor, former Deputy National Intelligence Officer for Russia and Eurasia at the National Intelligence Council and a former senior analyst at the CIA, “Sanctions won’t act as a deterrent when dealing with someone like Putin, who is so intent on pursuing maximalist objectives that the economic costs don’t factor into his calculus to any meaningful degree. The goal of sanctions at this point is to raise the costs of the conflict, to signal to the Russian people that Putin is taking their country in the wrong direction, and, critically, to strangle Russia’s ability to partake in destabilizing activities internationally.” 

There is hope that sanctions will cause enough damage to Russia to destabilize the country, devastate the economy, and reduce the support of a Ukraine invasion among the oligarchs and the ordinary citizens of Russia, …….


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