The sanctions imposed on Russia by the United States and NATO allies—and the threat of more—will likely have ramifications for some U.S. states in particular and for the economy in general, some economists say.
The price of a loaf of bread will probably go up in the next couple of months, says Dan White, senior director of government consulting and public finance research at Moody’s Analytics. That’s because the global grain market is already responding to the potential for a ban on imports from Russia, the world’s largest wheat producer, as well as disruption from the major wheat supplies from Ukraine.
I think (states) should be prepared for economic realities that aren’t necessarily as rosy as they were hoping for ... given all the uncertainties around this. —Dan White, Moody’s Analytics
Same with oil. Energy-based state economies will see rising income as oil responds to price hikes on the global market, says Christopher Thornberg, founding partner of Beacon Economics. He says the price increases are happening even without direct sanctions on energy production because of the general instability in the market now.
“It’s good for places like Texas, Oklahoma, North Dakota,” Thornberg says. “They are making more money for what they are pulling out of the ground,” and he notes it has a multiplier effect if they add jobs and equipment.
That price increase is already hitting consumers, which means gains for farmers and oil producers—and subsequently for state coffers—might be overshadowed by the impact of worsening inflation these economists expect to come out of the sanctions.
“So it’s going to have a big impact on markets, but in general, the biggest impact on all states is going to be higher consumer prices,” White says. “Inflation is going to speed up a little bit more, and depending on how the (Federal Reserve) deals with that, there could be some real consequences.”
The economists note it’s difficult to predict the results when the economy is hit by shocks outside the system, like Putin’s invasion.
“I think (states) should be prepared for economic realities that aren't necessarily as rosy as they were hoping for ... given all the uncertainties around this,” White says.
‘A Long Game’
When he announced the sanctions, President Joe Biden said the administration would work to limit the economic impact on Americans, especially around gas prices, and warned U.S. oil and gas companies against exploiting the moment to increase profits.
The Biden administration and NATO hoped Putin would back off his plan to invade Ukraine when they laid out sanctions they intended to impose in the weeks before the invasion. After he sent the Russian army to invade on Feb. 24, the governments set many of those sanctions in motion.
And while oil, gas and wheat prices rose immediately, other impacts will take longer, says White, who calls sanctions a long game. “In general, sanctions are not intended to work quickly. They’re supposed to be a slow death.”
Kelley Griffin is a writer and editor at NCSL.