The war in Ukraine is bringing misery and geopolitical uncertainty to Europe. Economically, however, the impact of the sanctions for the Eurozone is weak, as exports to Russia are of little importance. The biggest economic risk for Europe is posed by a potential halt to Russian gas supplies. Inflation in Europe is half driven by energy prices but is becoming increasingly broad-based in the US.

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Russia has accumulated foreign exchange reserves of around USD 640 billion, which can partially cushion the impact of potential financial sanctions. However, the recent sanctions adopted by the West against the Russian central bank may cut off access to much of these reserves. In a risk scenario, this harsh measure could make Vladimir Putin even more willing to impose countermeasures and halt gas supplies to the West. However, it is also possible that in this weakened position he will have to rely all the more on his main source of income – energy exports.

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