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Sanctions Against Russia And Unintended Consequences

Global politics can have disastrous consequences for stock traders.

Too often, those who trade stocks fail to look beyond the current headlines and thereby fail to recognize dangers on the horizon.

The conflict in Ukraine and the economic consequences of a possible sanctions war present numerous factors that stock traders should consider.

Consider the unintended consequences.

President Jimmy Carter’s 1980 Grain Embargo against the former Soviet Union, though well intended, had little effect and harmed US farmers.

Seeking to force an end to the Soviet invasion of Afghanistan, Carter banned grain exports to the Soviets.

The Soviets had invaded Afghanistan to combat the rising, militant Islamic forces. We too invaded Afghanistan two decades later in response to the 911 attacks.

Carter’s grain embargo did cause problems for the Soviets because they had to source their grain supplies from other countries. That was, however, only a minor problem because many countries eagerly lined up to meet the demand.

The US grain farmers suffered the unintended consequences.

Suddenly, the over-supply of grain in the US caused grain prices to plunge.

Some believe that this was a foreign policy blunder that led to the US farming crisis of the 1980s.

Though evidence is unavailable, it has been speculated that the nations stepping in to supply the Soviets during the embargo were buying up the over-supply of US grain and delivering it to the Soviets at a handsome profit.

European policy-makers have joined President Obama in establishing sanctions that ban Russia’s access to capital markets. They are attempting to force an end to the “Russian Invasion” of Ukraine.

So far, there is little evidence that Russia has “invaded” Ukraine.

Some observers see the conflict as a Ukrainian civil war with both Russia and the European Union taking sides by supplying support and encouragement.

Russia has, in retaliation for the sanctions, banned the importation of most agricultural products from the European Union as well as the other countries participating in the sanctions.

European farmers are presently feeling the unintended consequences.

Soon, the overall European economy will feel the effects of economic deflation as the over-supply of agricultural products leads to falling prices.

That does not include the loss of more than 6 billion dollars in annual sales to Russia.

If the European Union falls further into economic recession, it could stall the anemic global economic recovery.

As the Russians shop for new sources of agricultural products, many countries are lining up to meet the demand.

It is unlikely that Russia will end their new relationships with  russia Ukraine warother suppliers when the ban is lifted in one year as planned.

The former export volume of agricultural products from Europe to Russia might never return.

European Union member-states are not unified in their support for additional sanctions against Russia.

The first round of sanctions has already brought unintended consequences and some officials are openly calling it a mistake.

A sanctions war with Russia is a real possibility if additional sanctions are enacted.

In a recent radio interview, Slovakian Prime Minister Robert Fico stated; “In politics, this is called shooting oneself in the foot.”

 

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