Will Sanctioning Russia Fuel Financial Contagion?

CAIRO – The unprecedented sanctions imposed on Russia – which some have dubbed economic weapons of mass destruction – have globalized the Ukraine crisis, exacerbating market uncertainty and potentially derailing the post-pandemic recovery. Across Europe and elsewhere, growth forecasts for 2022 have been revised down sharply.

Beyond dampening output and causing already high inflation to spike further, these sanctions are heightening the risk of a financial crisis. Today’s increasingly complex global financial system amplifies this danger, because the magnitude of derivatives markets and the codependency of supply chains and payment chains make contagion more likely.

Stagflation was already a looming global threat, and the war in Ukraine has further increased the danger. The world, still grappling with the fallout from the US-China trade war and the COVID-19 pandemic, now faces its third policy-induced economic crisis in quick succession.

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