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Food and energy prices 'likely to surge further' due to Russia sanctions: ING

Sanctions on Russia will likely have a significant impact on the global economy, a recent ING (ING) report found.

"By now, we all know that Europe gets nearly 40% of its natural gas and 25% of its oil from Russia (this differs across countries), and is likely to be walloped with spikes in heating and gas bills, which are already soaring," ING Global Head of Macro Carsten Brzeski wrote in a report released earlier this week. "Given that Ukraine and Russia have also been labelled as the global breadbasket, food prices are also likely to surge further. Both countries account for roughly a quarter of total global exports."

The sanctions, however, were designed to punish Russia without tanking economies reliant on Russian commodities since Europe is heavily dependent on Russian gas for fuel for various energy expenditures such as heat and gas.

“The sanction response to the military escalation so far has been aggressive and generally coordinated, but careful not to disrupt Russia’s key commodity exports to the main partners,” Brzeski explained. “That is probably explained by Russia’s importance to the commodity and financial markets, and also by the necessity to leave room for additional pressure in case of further military escalation.”

An employee is seen at an oil platform operated by Lukoil company at the Kravtsovskoye oilfield in the Baltic Sea, Russia September 16, 2021. REUTERS/Vitaly Nevar
An employee is seen at an oil platform operated by Lukoil company at the Kravtsovskoye oilfield in the Baltic Sea, Russia September 16, 2021. REUTERS/Vitaly Nevar

Even so, these sanctions will have important implications for the global economy in the short run, and potentially the long run, too. With the costs of doing business increasing for many Russian institutions, certain sectors in the world economy reliant on Russian industry may also see higher prices for crucial goods. Perhaps the most potent effect that the sanctions will have on the global economy is a rise in energy prices. Russia is a powerful player in the energy sector, and several Western nations rely on Russian oil and gas.

Prices for oil and natural gas have spiked, fueling - no pun intended - higher gas prices for many in the US. Gas prices rose on average 8% during the past week alone, thanks in large part to the crisis in Ukraine.

This newest round of sanctions arrives in the context of a Western economy already suffering from widespread inflation, especially in the energy and gas sectors. In 2019, Russia provided over 40% of gas exports to the European continent. With some of these Russian businesses compromised by sanctions, higher prices in the energy sector will likely continue to push up global inflation.

Global supply chain disruptions may get worse

The United States is likely to experience supply shortages as a result of restricted trade with Russia, especially in agriculture. The world's largest country by land mass is also the world's second-largest producer of potash - a key ingredient for major crops which farmers rely on - after Canada.

Additionally, Russia's status as a major mining power will likely worsen shortages of important metals in the global supply chain.

A view shows a metallurgical workshop of Kola Mining and Metallurgical Company (Kola MMC), a subsidiary of Nornickel metals and mining company, in the town of Monchegorsk in Murmansk Region, Russia February 25, 2021. REUTERS/Evgenia Novozhenina
A view shows a metallurgical workshop of Kola Mining and Metallurgical Company (Kola MMC), a subsidiary of Nornickel metals and mining company, in the town of Monchegorsk in Murmansk Region, Russia February 25, 2021. REUTERS/Evgenia Novozhenina

Russia is a major producer of palladium, which is used in automotive production, mobile phones and even dental fillings, according to the report. Russia produces about 6% of the world's supply of aluminum, which saw its price spike to a record high on Monday in response to the sanctions.

[Read more: Precious metals move higher amid Russia-Ukraine tensions]

"The world, and particularly Europe, could be facing severe supply disruptions, undermining the industrial rebound and also the private consumption rebound expected with the end of the Omicron restrictions. Globally, a surge in commodity prices will aggravate already existing inflationary pressures," Brzeski wrote.

Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.

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