WASHINGTON — Russia's invasion of Ukraine last week isn’t just an international story. It might also have deep impacts within the U.S., affecting economics and politics in an electorate that has started the year in a sour mood.
Last year should have sparked more joy among Americans. It was marked by big economic growth and low unemployment rates. But poll after poll shows Americans still feel the nation is struggling. And regardless of what’s driving those feelings — such as rising inflation or the unending Covid-19 saga — the mindset has gotten ahold of much of the nation at the moment.
Now, the fallout from Russia's incursion into Ukraine — and the economic sanctions that followed — has the potential to turn the dour mood into something that looks more like anger as the midterm elections approach.
There’s a wide variety of possible impacts; focusing on just three of them shows the potential for a very bumpy 2022.
Let's start with an economic measure people mention frequently, the state of the Dow Jones Industrial Average. Voters often cite it as a broad measure of the state of their retirement accounts. That’s an oversimplification (retirement investments are usually more complicated than the state of one stock index), but psychologically, the Dow still matters to many Americans, and the index may look unsettled for the near future.
Investors and businesses like stability. War and sanctions create the opposite.
Even before last week’s invasion, the Dow had been in a slump, and the Russia-Ukraine tension has probably played some role. As of Friday’s close, the Dow was down by 2,500 points, or 7 percent, compared to the beginning of the year. It was actually up from a crash on Thursday that immediately followed the invasion, but the larger message seemed to be increased volatility.
High uncertainty creates hand-wringing when people check their retirement accounts and fret over the money they have "lost." The story is more complicated, of course. Markets go up and down, and much of the wealth that was "lost" was really only theoretical. It was never truly held by the people looking at their online 401(k) statements.
Even with this year’s dip since January, the Dow is still up over where it was at the end of 2020 or the end of 2019. But ultimately, the Dow is more of psychological measure of wealth for most Americans than a real one, and numbers that bounce up and down create consternation.
Other measures carry a little more real-world weight, however. Consider oil prices, which have jumped since Russia invaded Ukraine.
Again, oil prices had been rising since the beginning of January, but the increases had been more dramatic in the last few weeks as the situation in Ukraine grew more intense. All told, the price of a barrel of oil has climbed by 24 percent in the Brent crude oil measure since the beginning of the year — from about $79 to nearly $100 at the close of business Friday.
Rising gas prices hit the economy across the board, and they can have big inflationary effects over time. Merchandise has to be shipped. That means fuel for tankers, trains and trucks. If those prices stay high, costs are generally passed on to consumers.
On top of that, there is the pain at the pump that consumers feel when they fill their tanks of their cars and trucks. As the Data Download noted in November, the increased costs tend to fall harder on rural communities where people often have to drive more and where they are more likely to own pickup trucks or other vehicles that are less fuel-efficient. Such increases could fire up rural voters and bring them out to the polls in greater numbers.
And one other place Americans could feel the impact of the invasion is at the checkout line at the supermarket. Together, Russia and Ukraine account for about 29 percent of the world's wheat export market, and last week's actions sent wheat prices climbing.
Again, the increase in prices of wheat predate last week’s events in Ukraine, but the jump has accelerated since early February, and there was a short, sharp spike Thursday. By Friday evening, wheat future prices had settled in at more than $8.59 a bushel. That was up by 13 percent from where the price was at the beginning of the year.
The U.S. imports very little wheat from Ukraine. In fact, the U.S. is a net exporter of wheat by a massive margin. But if and when global supplies shrink, prices rise, and that can have impacts that reach around the world — even into your local market.
The Russian invasion is still very fresh, and its real meaning and impact will unfold slowly, but, more important for 2022, the sanctions the U.S. and its allies have chosen as a response take time to work.
The real power of sanctions comes in the form of political pressure on the targeted country. That takes time to build in any environment but even longer in a country like Russia, with authoritarian leadership that is more immune to public opinion.
President Joe Biden announced Thursday that the U.S. and its allies were stepping up sanctions against Russia and said the Ukrainian people are most likely in line for several difficult weeks and months. The timeline suggests that any economic disruptions from the invasion are going to be with us a while. And an already surly electorate is going to have plenty of reasons to be in a fouler mood.