We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. Learn more.

By: and
Published: Feb 24, 2022 8 min read
Collage of Joe Biden and Vladimir Putin with a ripped hundred dollar bill in the background
Money; Getty Images

As tensions escalate between Russia and Ukraine over international borders and sovereignty, consumers in the United States could soon feel an impact on their wallets.

Global markets tumbled following Russian forces' invasion of Ukraine early Thursday, with stock market indexes like the S&P 500 down 2.2% shortly after the open and the Dow Jones Industrial Average down 2.5% (more than 800 points). The tech-heavy Nasdaq entered bear market territory for the first time since 2020.

Meanwhile, oil prices surged past $100 per barrel. Yields on the 10-year U.S. Treasury note dipped below 1.9%, and the price of gold popped 0.8% on Thursday after steadily rising for weeks as investors flooded into safe-haven assets.

All of that movement in the markets was triggered in part by anxiety surrounding new sanctions announced by the White House against Russia — and by the possibility that more sanctions are likely if the conflict continues.

Russia is a major oil supplier, meaning sanctions on the country could have ripple effects around the world. Although the conflict is oceans away — and at this point, nobody knows exactly what's going to happen — Americans will likely feel the pinch in their wallets thanks to rising energy prices and an uncertain global economy, says Kathy Bostjancic, chief U.S. economist at Oxford Economics.

How do sanctions work?

Economic sanctions are a way a country or government can put pressure on another entity (be it another country, a business or an individual) without using military force. According to the Council on Foreign Relations, a nonpartisan think tank, sanctions can include trade restrictions, travel bans, foreign aid reductions, the freezing of assets and more.

On Thursday, Biden announced a new set of sanctions on Russian banks and individuals as well as limits on Russian exports. The sanctions will "impose severe cost on the Russian economy, both immediately and over time," Biden said, and they follow another set of less severe penalties announced earlier this week that were an unsuccessful attempt to stave off a full-scale military invasion in Ukraine.

The list of sanctions — like a similar batch imposed on Russia in 2014 — is designed to use economic pressure to make it more difficult for Putin to carry out an agenda that the U.S. opposes.

“The world will hold Russia accountable,” Biden said in a statement Wednesday. He announced further consequences in the form of more severe sanctions on Russia on Thursday.

Will Russia sanctions affect U.S. inflation?

Inflationary pressures have buffeted the global economy in the wake of the coronavirus pandemic and sent prices soaring more than 7% over the course of a year.

The crisis in Ukraine has the potential to drive the inflation rate over 10%, according to an analysis by consulting firm RSM. The price of oil could rise to $110 per barrel, which — combined with the spillover impact on natural gas prices, consumer confidence and uncertainty — could push the rate of inflation 2.8 percentage points above where it is now, according to the firm. Financial markets are worried about a disruption in the supply of oil to markets, driving up the price of that oil, says Joseph Brusuelas, chief economist at RSM.

Russia is one of the world’s largest oil and gas producers, and any snags in those industries will be felt across the globe in the form of higher energy prices.

“Those prices are then passed along to consumers downstream,” Brusuelas says. “So anyone who buys heating oil for their homes, or puts gasoline in their cars, or flies on a jet for business or personal reasons is going to feel the pinch.”

It’s not just oil and gas

Biden said Thursday that it was "critical" to him to protect Americans from additional pain at the pump. But higher oil prices are only the start of the potential ramifications for American consumers. Food prices could take a hit, since Russia and Ukraine are both major exporters of wheat and corn. Prices of the two commodities, as well as soybeans, soared on Thursday.

The rising energy prices could also make goods like food and services like airline fares and public transportation more expensive, Bostjancic says.

And if you thought supply chain woes were behind us, think again. Experts say the Russia-Ukraine conflict could make matters even worse.

The availability of commodities that are produced and exported from Ukraine and Russia — from natural gas to wheat to iron and steel — may be interrupted, as Chris Rogers, supply chain economist at logistics firm Flexport, wrote in a recent report. Insurance costs for shipping in the region may increase, and there’s the potential for cybersecurity attacks involving logistical firms, Rogers added. Widening sanctions, he wrote, could complicate customs and billing activities, particularly for energy and metals producing firms.

All of that is on top of the supply chain pressures Americans have been seeing for months.

“We haven’t even exited the last supply shock that we were subjected to, which was the pandemic,” Brusuelas says. “It’s one shock on top of another.”

Will the Fed delay rate hikes because of the Russia-Ukraine conflict?

Federal Reserve officials have indicated for months that they are planning to raise interest rates several times this year to help combat surging prices and prevent the economy from overheating. But because the conflict in Ukraine has the potential to erode economic growth and depress consumer confidence in the U.S., there’s been speculation that the central bank might adjust its plans.

“It doesn’t sideline them, though,” Bostjancic says of the impact the Russia-Ukraine conflict could have on the Fed’s next move. “They’re still going to tighten but probably less.”

Oxford Economics now estimates the Fed will likely raise interest rates by 25 basis points in March and won’t raise rates a full by 175 basis points for the full year. These numbers are down from its earlier estimate of a 50 basis point hike in March and a 175 basis point hike for the full year, Bostjancic says.

The bottom line: Everything's up in the air

With the situation in Ukraine and Russia changing on an hourly basis, it’s hard to predict what the future will hold when it comes to inflation and the outlook for the American consumer. Some experts have raised doubts about whether imposing sanctions on Russia will be successful at all, and estimates vary regarding how the crisis will impact wallets across the globe.

“There's a lot of uncertainty,” Bostjancic says. “We don’t know how long the conflict will last.”

More from Money:

The Russia-Ukraine Conflict Is Rattling the Stock Market. Here's What Investors Should Do Now

The Russia-Ukraine Conflict Could Soon Send Gas Prices Even Higher

Stocks Just Entered a Bear Market for the First Time in 11 Years. Your Questions, Answered