The price of wheat and corn could skyrocket for this reason 0:58
New York (CNN Business) --
The crisis between Russia and Ukraine is unfolding thousands of miles from the nearest American city.
And yet, millions of American families would feel the economic consequences of a large-scale conflict.
This is because the world economy and financial markets are interconnected.
As Covid demonstrated, events on one side of the planet can trigger shock waves on the other.
In this case, a Russian invasion of Ukraine would likely drive up the already high cost of living in the United States, roil investment portfolios, and perhaps even slow the economic recovery.
"The average American household will bear the brunt of Vladimir Putin's invasion of Ukraine," said RSM chief economist Joe Brusuelas.
The hope remains that there will be no invasion and that the recent signs of de-escalation continue.
If not, American consumers could find themselves caught in the middle of this brewing conflict.
Who would benefit from the Russia-Ukraine conflict
Price increases at gas stations
Oil prices have risen in recent weeks to levels not seen since 2014, in part because an invasion of Ukraine could derail Russia's energy supply.
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Russia is an energy superpower, producing 9.7 million barrels a day last year, according to Rystad Energy.
This figure is second only to the United States and represents more oil than that produced by Iraq and Canada combined.
Possible effects on oil prices due to the conflict between Russia and Ukraine 2:53
Supply is no longer sufficient to meet demand, and investors are keeping a close eye on any further supply shortfalls that could come in a variety of ways, such as infrastructure damaged in a war, sanctions on Russia, or Moscow deciding to use energy exports as a weapon.
JPMorgan warned that if any flow of Russian oil is cut off by the crisis, oil prices could "easily" reach $120 a barrel.
In the unlikely event that Russian oil exports are cut in half, crude would soar to $150 a barrel, JPMorgan said.
A drastic rise in oil prices could be offset, at least in part, by the release of emergency reserves by consuming countries and increased production by OPEC.
However, another increase in oil prices would raise prices at gas stations, which respond to the evolution of crude oil prices.
The national average price of a gallon of gasoline is already at its highest level in the last seven years: US$3.50 a gallon, according to AAA.
Oil prices fell sharply on Tuesday in hopes that Russia and Ukraine will de-escalate the conflict.
The latest news from the Ukraine-Russia conflict: Biden and Putin make room for diplomacy
historical inflation
Inflation is the biggest problem facing the US economy.
And the crisis between Russia and Ukraine could aggravate it even more.
Even if oil rose to just $110 a barrel in an escalation of tensions, the year-on-year rate of inflation would top 10%, according to an RSM analysis shared with CNN.
That is more than the current 7.5%.
US inflation hasn't hit 10% since 1981.
Not only would this drive up prices at gas stations, but rising oil and natural gas prices would drive up home heating and electricity costs.
Price increase in the US does not let up: another measure of inflation soared in January
Rising energy prices would make flights more expensive and keep transportation and input costs high for businesses already grappling with rising expenses.
Companies are likely to pass on at least part of these higher costs to consumers in the form of price increases.
Beyond energy, other commodities could experience price volatility.
Russia is a large producer of metals, such as aluminum and palladium.
Russia is also the largest exporter of wheat, while Ukraine is a major exporter of both wheat and corn.
“All of this would occur at a time when commodity supplies are more stressed than they have been in a generation,” David Kelly, chief global strategist at JPMorgan Funds, wrote in a report Monday.
Of course, inflationary pressures would likely be even greater for the Europeans, given their proximity to the crisis and their reliance on Russian energy.
turmoil in the markets
Investors have been keeping an eye on the latest developments in the crisis between Russia and Ukraine.
Signs of escalation have spooked markets, while talk suggesting war could be averted have sparked rallies.
Investors hate uncertainty.
It's easy to see how a full-blown invasion of Ukraine would trigger a sell-off in stocks, as investors grapple with the prospect of an oil shock, higher inflation and a confusing sanctions regime.
A prolonged market decline would wipe out the wealth accumulated by families in the stock market and in retirement accounts.
Market instability could also dampen consumer and business confidence.
Stocks have a history of recovering from geopolitical shocks, although the sample size is relatively small.
And it is impossible to say how the markets would respond in the current environment.
Global Stocks Fall as Fears Rise of a Russian Invasion of Ukraine
Lower economic growth
A conflict between Russia and Ukraine would threaten to slow down the US economy by worsening inflation and increasing uncertainty.
RSM's analysis concluded that raising the price of oil to $110 would dent US GDP by one percentage point.
This is not as drastic as the impact on inflation, but it is still significant given that the US economy has not fully recovered all the jobs lost during the covid pandemic.
Higher Borrowing Costs
If inflation soars above 10%, the Federal Reserve would be under pressure to intensify its fight to control prices.
That could mean a faster pace of interest rate hikes to cool inflation.
Upcoming interest rate hikes from the Federal Reserve will drive up borrowing costs for consumers, from mortgages and auto loans to credit cards.
Mortgage interest rates have already risen to pre-crisis levels in recent weeks, posing a new challenge for homebuyers.
The Federal Reserve could choose to dismiss the rise in inflation as a temporary phenomenon driven by the Russia-Ukraine situation.
However, that strategy didn't work out so well last year, with the Fed eventually abandoning its "transient" description of Covid-related inflation.
At a minimum, the Russia-Ukraine situation would further complicate the Fed's already difficult task of taming inflation without triggering a recession.
Cyber attacks and more
United States President Joe Biden warned Tuesday of the possibility of Russia attacking through the cyber domain.
"If Russia attacks the United States or its allies through asymmetric means, such as disruptive cyberattacks against our businesses or critical infrastructure, we are prepared to respond," Biden said.
The Colonial Pipeline cyberattack last year demonstrated just how damaging a cyberattack can be in the real world.
The cyber intrusion shut down one of America's most important oil pipelines, sparking panic buying that left many gas stations in the Southeast empty.
US officials brace for potential Russian cyberattacks as standoff with Ukraine continues
A successful cyberattack against the US financial system, one of Fed Chairman Jerome Powell's main concerns, could be even more disruptive.
A cyber attack is just one example of how the situation between Russia and Ukraine could spill over into everyday life.
"Wars evolve in unpredictable ways," said JPMorgan's Kelly.
"No one should assume that they can see all the impacts of a war at its onset."
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