Inflation fears could limit US sanctions on Russia

America’s Rapid Inflation can limit blistering punishment package that the Biden administration is preparing to attack Russia, forcing American officials to consider how much counter-economic blow consumers are prepared to endure.

Prices are rising at their level fastest speed in 40 yearsand sanctions, depending on how they are structured, could exacerbate inflation, especially in energy and commodities.

White House officials said this week that the administration is considering releasing more oil from the Strategic Petroleum Reserve to stabilize global energy markets. has been disturbed by the conflict. The United States is also working with other countries to mitigate the impact any sanctions could have on Americans already struggling with rising prices.

Those concerns are likely to shape the extent to which the United States is willing to punish Russia for its invasion of Ukraine, analysts say.

“Sanctions are not free,” said Alex Zerden, a former Treasury Department official in the Obama and Trump administrations. “To the extent that they’re adding to inflationary pressures, that’s a distinct possibility.”

President Biden, in announcing a new round of sanctions on Thursday, made clear that he was aware of the need to protect American consumers from higher gas prices but he had to balance that with the need to meet pay.

“I know this is hard and Americans have been hurt. I will do everything in my power to limit the pain the American people are suffering from pumping gas. This is very important to me. But this aggression cannot go unanswered. If it happens, the consequences for the US will be much worse,” Biden said.

Global markets can be extremely sensitive to sanctions. In 2018, when the United States imposed sanctions on Russian aluminum giant Rusal and its billionaire owner, Oleg Deripaska, the move led to a aluminum prices spike around the world.

“The Biden administration and its allies are completely watching the prices of metals, grains and energy,” said Daniel Tannebaum, a partner at Oliver Wyman who advises banks on sanctions. as a variable associated with the next steps. “We all remember what happened with one of the tycoon designations in 2018, where there was a brief malaise in the global aluminum sector.”

Oil prices are the biggest concern for the time being.

Economists have offered varying estimates of how much an oil price shock could spur inflation.

If oil rises to $120 a barrel by the end of February – past the $95 mark it hovered over last week – inflation as measured by the Consumer Price Index could rise by nearly 9% over the next few months, because of the expected peak, said Alan Detmeister, an economist at UBS who previously led the prices and wages department at the Fed.

Economists at Goldman Sachs wrote in a research note that a $10 per barrel increase in oil prices raises key US inflation by about a fifth of a percentage point and slows gross domestic product growth. just under 0.1 percentage point.

The Biden administration has signaled that it is cautious about imposing sanctions on Russia’s oil and gas sector despite calls by some analysts to blacklist export activities. Russian energy exports.

After the 2014 Crimea crisis, the United States tried to limit the impact of Russian sanctions on the energy market by targeting the country’s medium-term oil production with limits on its ability to access oil. financial access.

Rachel Ziemba, a senior fellow in support at the Center for a New American Security, said that strict sanctions against Gazprom or Rosneft, Russia’s energy giants, would be a surprising escalation, and even sanctions on financial institutions could potentially remediate energy deals.

“It’s not just inflation risk,” Ms. Ziemba said. “They worry about a major supply shock that could trigger a recession or meaningful downturn in the global economy.”

Jeanna Smialek contribution report. Inflation fears could limit US sanctions on Russia

Fry Electronics Team

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