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The Impact of Russia Sanctions on U.S. States

By Kelley Griffin  |  February 28, 2022

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.

‘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.”

Taking Actions Both Real and Symbolic

As states look to manage the potential impact of the Russia sanctions on their economies, they are also looking to contribute to the fiscal pain the country faces for invading Ukraine.

Growing numbers of states, including Colorado, Illinois and New Jersey, are exploring how to extract Russian funds from their pension and retirement plans, according to the Wall Street Journal. And in a symbolic move, several states, including New Hampshire, Ohio and Utah, are removing Russian vodka from the shelves at state-operated stores.

The ban is symbolic because despite Russia’s reputation for producing vodka, its product amounts to only 1.2 percent of sales in the United States, according to the Distilled Spirits Council.

The state pensions divestments involve bigger numbers, but even so, most state plans are not heavily invested in Russian funds. In Colorado, where Gov. Jared Polis directed the Public Employees Retirement Association to divest, officials said they found $8 million in Russian funds. PERA includes a total of roughly $58 billion in investments. Polis also directed officials to cancel any Russian contracts in state government and academic research, and to prepare to welcome Ukrainian refugees.

John Mahoney, a project manager in NCSL’s Institute for International Cooperation, says staff are fielding calls from legislators who are exploring these options. And while no one state has a big investment in Russia, multistate action has a potentially cumulative effect, he says.

“One state saying you can’t sell Russian vodka in our state anymore, or divesting a few million of public funds from Russian assets, may not be a huge (economic) impact,” Mahoney says. “But you start adding up all of these actions and the cumulative impact could certainly become significant.”

Kelley Griffin is a writer and editor at NCSL.

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