The War Began In February. Supply Chain Disruption Is Hitting Home Now.

The War in Ukraine began with a Russian invasion on February 24, 2022. U.S., EU, and allied nations economic sanctions were announced in stages from late February through March. New sanctions are being announced almost daily.

Some have delayed effective dates and are just coming into effect now. That much is apparent from the headlines. What is not apparent is how the economic impact plays out.

The effects are not immediate. Some shipments were literally on vessels and trucks when the sanctions were announced, and those deliveries were completed.

Certain dollar payments on Russian government debt were allowed to be made even after Russian banks were kicked out of SWIFT and other international payments systems. This was done to avoid losses for holders of that Russian debt, which include giant asset managers such as BlackRock and individual 401(k)s that have Russia debt buried inside ETFs touted by Wall Street in recent years.

In some cases, suppliers and intermediate manufacturers had inventories they could use to keep assembly lines running, even though new supplies were not arriving. So, despite the formal severity of the sanctions, much less has changed in the economy than many assume. Now, the real impact is beginning to emerge.

This article reports that Germany has just announced the “early warning stage” of its multi-stage emergency plan to deal with natural gas shortages. The early warning stage involves intense monitoring of natural gas usage, supplies, and new sources of gas.

As the shortage becomes more severe, Germany can cut factory output, require citizens to turn down thermostats, raise prices and implement other more extreme measures. In the worst-case, Germany will ration natural gas so that hospitals and essential services receive what they need.

Other users will be required to shut down. This shows the folly of most sanctions. They are supposed to be economic weapons aimed at Russia, but the big loser will be Germany, which faces hardship and economic recession because of its dependence on Russian energy.

Sanctions are not very effective weapons. They’re more like boomerangs that come back to hit the person who launched them.

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