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Russia's President Vladimir Putin signed decrees to recognize the independence of Donetsk and Luhansk. Moscow ordered troops into these areas on Monday, escalating the prospect of war between Russia and Ukraine.Alexei Nikolsky/TASS via Getty Images

Jason Furman said Russia's economy is "unimportant" other than gas, The New York Times reported.

His comments come as the US and Europe prepare heavy sanctions on Russia if it invades Ukraine.

But there are concerns that their plans to punish Moscow will penalize the rest of the world too.

Russia's economy is "incredibly unimportant in the global economy except for oil and gas," Jason Furman, a Harvard economist and former advisor to President Barack Obama, told The New York Times.

"It's basically a big gas station," he said.

His comments come as the West prepares heavy sanctions on Russia if it invades Ukraine. While they have the potential to throw the Russian economy into chaos, these measures could also reverberate to further damage the US, Europe, and the rest of the world as they battle inflation and rising energy prices a ripple effect that the West hopes to mitigate.

On Monday, Moscow declared the independence of two breakaway regions of Ukraine and sent troops there escalating the prospect of a major war. President Joe Biden has already ordered sanctions on the separatist regions Donetsk and Luhansk prohibiting US citizens from engaging in any exports, imports, or new investments in these areas.

Despite Russia's size and wealth in raw materials, its economy is more on par with Brazil than with nations like Germany, France, and the UK, according to the latest nominal GDP data from the World Bank. According to the World Bank, Russia's economy is smaller than Italy's and South Korea's, two nations with less than half of Russia's population.

But as Furman noted, Russia's oil and gas exports are significant to the world.

The European Union imports about 80% of the natural gas it uses, according to the US Energy Information Administration, and Russia accounts for 41% of the natural gas imports and 27% of the oil imports in the continent, according to Eurostat.

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Compounded with energy prices in the EU surging from 20 euros to 180 euros a megawatt-hour over the past year, the disappearance of those gas and oil imports could spell disaster for the region and the interconnected global economy. Meanwhile, in the US, gas prices have hit a seven-year high, climbing to about $3.50 per gallon on average, while inflation over the past year has grown at its highest rate in 40 years, at 7.5%.

On the other hand, Ukraine has also been a major supplier of grain to other regions, sending 40% of its wheat and corn exports to the Middle East and Africa, The Times reported.

In response to a potential food crisis in those regions, US Secretary of Agriculture Tom Vilsack said on Saturday that American farmers would increase production and "step in and help our partners," The Associated Press reported.

Ukraine accounts for 12% of the world's grain exports and is estimated to provide 16% of global corn exports this year, the AP reported. Vilsack told the outlet he believed that American consumers would largely be unaffected but that Europeans would face "a different story."

"You have to look at the backdrop against which this is coming," Gregory Daco, the chief economist for consulting firm EY-Parthenon, told The Times. "There is high inflation, strained supply chains and uncertainty about what central banks are going to do and how insistent price rises are."

Read the original article on Business Insider

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Harvard economist and former Obama advisor says Russia is 'basically a big gas station' and is otherwise 'incredibly unimportant' in the global...