When governments impose economic sanctions, the stated goal is political: to pressure a target country into changing its behaviour. But sanctions have a second-order effect that is less often discussed — they reliably generate inflationary pressure, not just in the sanctioned country, but often across the global economy. Understanding this mechanism matters for anyone trying to understand why prices are rising.
The basic mechanism
Sanctions work by restricting trade — blocking the flow of goods, services, capital, and technology between the sanctioned country and the rest of the world. This restriction creates artificial scarcity. When a major exporter of a commodity is sanctioned, global supply of that commodity falls. If demand stays the same or rises, prices increase.
The scale of this effect depends entirely on how significant the sanctioned country is as a supplier of something the world needs. Russia's 2022 sanctions provide the most clear recent example: Russia accounts for approximately 12% of global oil production, 17% of natural gas exports to Europe, 20% of global wheat exports, and significant shares of metals including nickel, palladium, and aluminium. Sanctioning Russia did not just affect Russia — it removed large portions of global supply from multiple commodity markets simultaneously.
The energy transmission channel
Energy is the most powerful inflationary transmission channel from sanctions. Oil and gas are inputs into virtually every sector of the economy — manufacturing, agriculture, transport, heating, electricity generation. When energy prices rise, the cost of producing almost everything rises. This is why oil price spikes have preceded or accompanied virtually every major inflationary episode of the past 50 years.
The current Brent crude price above $100 per barrel partially reflects sanctions-related supply constraints. At $100+ oil, transport costs rise, agricultural inputs become more expensive (fertilisers are energy-intensive to produce), manufacturing costs increase, and ultimately consumer prices follow.
The trade disruption channel
Beyond direct commodity effects, sanctions disrupt established trade routes and supply chains in ways that persist long after the initial shock. Companies restructure their supply chains to avoid sanctioned entities. Shipping routes change. Insurance costs rise for vessels operating in certain regions. Payment systems fragment as sanctioned countries are excluded from SWIFT and dollar-denominated transactions.
This fragmentation has a cost: global trade becomes less efficient. Goods that used to travel directly now travel via third countries. Middlemen emerge, each taking a margin. The result is higher costs embedded throughout global supply chains — costs that eventually reach consumers as higher prices for manufactured goods.
The currency depreciation channel
Heavily sanctioned economies typically experience severe currency depreciation. A falling currency makes imports more expensive, directly generating domestic inflation in the sanctioned country. But it also affects global prices when the sanctioned country tries to maintain export income — sometimes by selling commodities at a discount to willing buyers, which can suppress some prices even while others rise.
What this means for the WTM score
The World Tension Meter tracks sanctions exposure as part of its trade disruption signal (20% of total score). The current trade score is elevated, reflecting the continued sanctions environment across multiple major economies. When combined with the energy signal (Brent above $100) and the conflict signal, the result is the current composite score of 82 — reflecting a genuinely interconnected set of stresses that all have sanctions and geopolitical fragmentation as a common thread.