The new measures announced by the United States, Great Britain, Europe and Canada also include restrictions on the international reserves of the Russian central bank. The sanctions will be applied in the coming days.
Investors feared that Russia would be shut out of SWIFT, the main international payments network, as it would disrupt global trade and harm Western interests, while hurting Russia.
“This means that there will be a catastrophe on the Russian currency market on Monday,” said the former vice-president of the Russian Central Bank, Sergei Aleksashenko. “I think they will stop trading and then the exchange rate will be set at an artificial level, like in Soviet times.”
Michael Farr, managing director of financial advisory firm Farr, Miller & Washington LLC, said of the impact on global markets: “It could come as a surprise that is not taken very well if it means a slowdown in the international trade.”
The news comes after a week where worries over the escalating conflict in Ukraine rocked markets around the world, with stocks falling and oil prices soaring, investors rushing to gold, the dollar and other safe havens.
Many of these safety measures were at least partially reversed on Thursday and Friday, and US stock markets rallied to end the week higher.
The latest measures could send markets into another wild ride as traders weigh the consequences for the global economy, including a potential rise in commodity prices and inflation. The war between Russia, one of the world’s biggest commodity exporters, and Ukraine has already helped push oil prices to their highest level since 2014.
A problem “will be the inflation that is caused here, and the extent to which it can really slow down the European economy. It could create headwinds if this continues again and again,” Farr said.
The S&P 500 has lost 8% since the start of the year, on concerns about geopolitical disputes and a more optimistic Federal Reserve.
“A lot of traders were sort of convincing themselves that the US and Europe weren’t taking a tough stance,” said Edward Moya, senior market analyst at OANDA. “This stock is going to be really tough to digest and it’s really going to strike a chord with a lot of investors. … A lot of the rebound we’ve seen in the second half of last week will be tested.”
Some investors, however, said the markets could be positive about the new measures, as Western troops have not joined the war.
“It’s the closest thing to a declaration of war from a financial point of view,” said Ross Delston, an American lawyer and former banking regulator. “This will result in Russia being considered radioactive by US and European banks, which in turn will be a major impediment to trade with Russia.”