Canada markets closed
  • S&P/TSX

    18,307.91
    -19.13 (-0.10%)
     
  • S&P 500

    3,647.29
    -7.75 (-0.21%)
     
  • DOW

    29,134.99
    -125.82 (-0.43%)
     
  • CAD/USD

    0.7291
    +0.0009 (+0.13%)
     
  • CRUDE OIL

    78.23
    -0.27 (-0.34%)
     
  • BTC-CAD

    26,028.12
    -330.37 (-1.25%)
     
  • CMC Crypto 200

    436.57
    -22.57 (-4.92%)
     
  • GOLD FUTURES

    1,637.00
    +0.80 (+0.05%)
     
  • RUSSELL 2000

    1,662.51
    +6.63 (+0.40%)
     
  • 10-Yr Bond

    3.9640
    +0.0860 (+2.22%)
     
  • NASDAQ futures

    11,368.00
    +34.25 (+0.30%)
     
  • VOLATILITY

    32.60
    +0.34 (+1.05%)
     
  • FTSE

    6,984.59
    -36.36 (-0.52%)
     
  • NIKKEI 225

    26,571.87
    +140.32 (+0.53%)
     
  • CAD/EUR

    0.7592
    +0.0018 (+0.24%)
     

U.S. sanctions could send 'Russian economy into a tailspin,’ CNAS fellow says

Edward Fishman, Adjunct Fellow at the Center for a New American Security, joins Yahoo Finance Live to discuss the power U.S. sanctions would have on Russia's economy, the parallels between Russia and China, the potential for cyber attacks, and crude oil markets.

Video Transcript

ALEXIS CHRISTOFOROUS: As you can see, we are looking at a podium shot there at the White House in the East Room as we await President Biden's remarks on Russia-Ukraine. He is expected to announce new sanctions against Russia, because now the US is calling deployment of troops to eastern Ukraine and invasion. I want to bring in Edward Fishman now, Adjunct Fellow at the Center for a New American Security who advised the Obama administration on economic sanctions.

Thank you so much, Edward, for being with us. If you were advising President Biden during this situation, what might you tell him with regards to economic sanctions?

EDWARD FISHMAN: Sure. Thanks so much for having me. As you said, the Biden administration has said that this is an invasion. And in the last few weeks, they have signaled very clearly that an invasion would lead to swift and severe consequences on the Russian economy. President Biden has the power at the stroke of a pen to throw the Russian economy into a tailspin.

And that's largely because of the outsized role that the US financial sector continues to play in the global economy. So I would be advising President Biden not to hold back-- not to get cold feet and to impose the sanctions that they've been planning and coordinating with allies for the last few months.

KARINA MITCHELL: And then what are some of those sanctions? I know stopping the sale of sovereign bonds is one of them-- what other sanctions can they impose?

EDWARD FISHMAN: Sure. I do anticipate that the Biden administration will extend sanctions on sovereign debt to secondary transactions. The initial sanctions were just on primary transactions with Russian sovereign debt, but that really won't be the marquee part of the package. I expect the Biden administration to impose really significant sanctions on the largest Russian state-owned banks.

So the Russian banking sector is quite concentrated. There are just a handful of banks at the top that really account for the lion's share of the sector. And I would be very surprised if the Biden administration doesn't impose some pretty substantial penalties on some of those banks today. And I do think at the same time, there will be room to ratchet up those penalties in the days and weeks ahead if Putin escalates his aggression further.

ALEXIS CHRISTOFOROUS: Well, you know, Craig, I'm wondering how much these sanctions might truly harm or hurt Russia. Because we saw on a very public stage at the Winter Games, which just wrapped in China, that there is a bond that is becoming stronger between Russia and China. So I guess my question is, what can the US and, really, the world do to impact Russia the most with regards to sanctions?

EDWARD FISHMAN: Look, I think there's a myth out there that Russia's economy is sanctions-proof. Certainly, in the last eight years since we initially imposed sanctions in 2014, Putin has done things to try to insulate Russia's economy from sanctions. But Russia's economy remains very vulnerable. You know, it's often touted how $630 billion have been accumulated in foreign exchange reserves.

What's not often said is that 2/3 of those foreign exchange reserves are held in dollar, euro, and other Western currency denominated assets. Those all could be frozen at the stroke of a pen by President Biden and his counterparts in the EU and the UK. China, I do not anticipate, will be a white knight in this situation.

I do believe that the Chinese government will take advantage of this situation. Certainly, you know, if Russia needs new markets and there's a profitable way for China to get involved, I'm sure they will. And by the way, the same applies on the flip side. I think as Russian commodities go off global markets, if there are opportunities for China to increase its market share, I don't anticipate Beijing to hesitate for one moment.

So I think that Beijing will do what's in its interest. And I don't think that it's going to rescue Russia anytime soon.

KARINA MITCHELL: And Russia will certainly do what's in its own interest as well. How could that impact us here in the US? We're no stranger to crypto attacks and hacks from Russia. Do we expect more of those? And what could they target?

EDWARD FISHMAN: It's a great question. And I do anticipate if the Biden administration does reach for some of the more severe sanctions that they're planning, that there could very well be retaliation. You saw a threat earlier this morning from Dmitry Medvedev from Russia about increasing gas prices in Europe. It's also possible that there's retaliation in terms of cyber attacks.

But the thing I want to stress here is that when you're comparing the US economy and the Russian economy, they're just not in the same league. The US economy is just so much stronger, so much larger than the Russian economy. There's just an asymmetric amount of leverage that the United States has. So I think if Russia were to retaliate against the United States, the more likely type of retaliation would be asymmetric retaliation in the cyber domain, and less so counter sanctions. Because I don't believe that Russia really has that much ability to affect the United States through sanctions.

ALEXIS CHRISTOFOROUS: What about in terms of the oil markets? I mean, Putin is saying that he's not going to disrupt supplies going through Ukraine. It seems as though the market's not truly believing that. We're seeing Brent crude nearly touching $100 a barrel. What could world economies do in terms of sanctions to put the squeeze on Russia to at least continue that oil lifeline through Ukraine if tensions do, indeed, escalate?

EDWARD FISHMAN: Sure. Well, when we're talking about oil, you know, the Biden administration has been pretty careful to signal that oil will not be included in the first wave of sanctions. Of course, they'd be rightly concerned about spiking oil prices even higher than they already are. But what I will say is that none of us really can project exactly where oil markets are headed.

And for some historical context, in 2014, when I was involved, again, you know, we imposed pretty substantial sanctions on Rosneft, the state-owned Russian oil giant, as well as sanctions on Russia's Arctic offshore deepwater and shale oil projects. And what happened in the next six months? We saw oil prices tank.

So it's not always exactly clear how oil markets will respond, but I don't anticipate oil will be part of the first tranche of sanctions. I think that will be held in reserve in the event that Russia escalates even further in Ukraine.

KARINA MITCHELL: OK, we will leave it there. Edward Fishman, Adjunct Fellow Center for a New American security. Thanks so much for stopping by and your perspective today.