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Quest Means Business

Sanctions Send Shockwaves Through Global Economy; E.U. To Slash Russian Gas Imports 66 Percent By End Of Year; Ukrainians Race To Escape Russian Assault In Irpin'; Nasdaq In Bear Market, Big Names Sinking; Russia Threatens Gas To Europe; Wheat And Nickel Prices Skyrocket, Sanctions In Russia Bite; The Unique History Of McDonald's In USSR And Russia; Unilever Suspends Imports, Exports Of Products. Aired 3-4p ET

Aired March 08, 2022 - 15:00   ET



RICHARD QUEST, CNN BUSINESS ANCHOR: There is an hour to go on trading, and some markets are betwixt in between, they don't know which way to turn.

They were down, then they rallied up, then they fell away. Now, they're back up again. It gives you an idea of the sort of flavor of the day.

The triple stock is similarly betwixt, but now, we are showing three green arrows. So, all are up. Let's see how we progress as the hour moves on.

The events of the day that demand your attention. The West takes aim at the core of Russia's economy, oil and feels the blowback. The U.S. and the U.K.

ban imports of Russian gas and oil. At the same time, wheat and nickel prices are skyrocketing. Russia is a major producer.

And McDonald's is closing hundreds of locations across Russia, at least for the time being.

Good evening. Live from London. It is Tuesday. It is March the 8th. I'm Richard Quest, and in London, of course, I mean business.

Good evening.

As you would expect, CNN covers this story from all sides from the military, from the political, and the economic. And today the economy was

front and center as well as the swift economic blowback and the failure has sent shockwaves across the financial world.

So in tonight's program, I'm going to show you the repercussions of what's happening.

We have energy, we have stocks, and shares, and the markets and you have what's happening with commodities like wheat and nickel.

And we start with energy. Western countries have now started to target the heart of the Russian economy, which of course is oil, gas energy.

The United States is banning imports of Russian oil and natural gas and coal; and the United Kingdom says it will phase out its use of Russian oil

by the end of the year.

President Biden said that there will be a price to pay for what he described as defending freedom. And at the White House, the President said

he would do what he could to reduce Putin's price hike.

He said the U.S. was supporting Ukraine by banning Russian oil.


JOE BIDEN (D), PRESIDENT OF THE UNITED STATES: That means Russian oil will no longer be acceptable in U.S. ports and the American people will deal

another powerful blow to Putin's war machine.

This is a move that has strong bipartisan support in Congress and I believe in the country. Americans have rallied support -- have rallied to support

the Ukrainian people and made it clear we will not be part of subsidizing Putin's war.


QUEST: Oil prices reacted, of course. They are up more than six percent at one point and Brent hit $130.00. West Texas crude was there, too, although

it is off the session highs and oil is up more than 50 percent so far this year. There is the price of Brent, we are now at around about $128.00. It's

a moving target. It's a rolling index, in the sense, each market starts trading.

M.J. Lee is at the White House. This is a calculated move, isn't it? The U.S. doesn't import much Russian oil, but even so, eight percent is quite a

sizable amount. And there will be an effect and a reaction.

M.J. LEE, CNN WHITE HOUSE CORRESPONDENT: Yes, you know, this is an announcement that came after days of deliberations by this White House and

this is being billed as another effort by the U.S. to try to squeeze Vladimir Putin, to try to essentially punish him and his country

economically for its ongoing attacks all across Ukraine.

But there are several reasons that this was a complicated deliberation for this administration. And one very obvious one, of course, as you have been

talking about is the effect that this could potentially have and is already having on gas prices.

Of course, this is an issue that this White House is particularly sensitive to, especially because even before today's announcement, we had seen gas

prices reaching record highs across the country. Even though it is true, as you pointed out that Russian oil actually makes up relatively speaking, a

smaller fraction of oil imports to the U.S., the White House is very much keenly aware that this is something that could continue to have an effect

in driving prices up.

And what the President we heard saying earlier today was basically putting the blame on Vladimir Putin, he said that this was Putin's price hike. So

we expect this to would be a kind of messaging that we continue to see from the White House.

And the other thing I would note, too that is a complicating factor and something that the White House is very sensitive to is where the rest of

the European countries and the U.S.'s allies are on this.


The President actually made pretty clear and even U.S. officials afterwards explaining the decision saying, we didn't even ask our European allies to

join us in this effort, already knew that most of them would not be joining them because the E.U.'s exposure to Russian energy is a lot greater than

the U.S.'s exposure.

QUEST: M.J. Lee at the White House. M.J., thank you.

The E.U., M.J. was talking about the role of the E.U. is now saying it is slashing its use of Russian national gas by two-thirds this year and will

stop altogether by 2030.

O.E.C.D. countries in Europe account for 60 percent of Russia's oil exports. Germany and the Netherlands were the leading buyers, you can see

there. The Vice President of the Commission Frans Timmermans said the E.U. is capable of shaking off its reliance on Russian energy.


FRANS TIMMERMANS, VICE PRESIDENT, EUROPEAN COMMISSION: By the end of this year, we can replace 100 BCM of gas imports from Russia. That is two-thirds

of what we import from them. This will end our over dependency and give us much needed room to maneuver. Two-thirds by the end of this year.

It is hard, bloody hard, but it's possible.


QUEST: "Hard, bloody hard, but possible," how do they do it?

ANNA STEWART, CNN REPORTER: How do they wean themselves off oil and gas from Russia? Well, it's going to take some time. It's not immediate.

QUEST: He said two-thirds by the end of the year.

STEWART: By the end of the year, we're talking about gas, first off, they're going to fill up their storage facilities, they want to see them 90

percent full by October, that gives them a buffer for the winter, then they're looking at both diversifying where they get their oil and gas from,

and for gas that means liquefied gas. So building more LNG terminals, that's something Germany specifically did not do since the annexation of

Crimea, France and other nations did build on that.

And then looking at diversifying energy itself. So looking at biomethane, looking at renewable hydrogen, making more, importing more, that's the


QUEST: You haven't said the nuclear word. Now, they take years to build nuclear reactors. But there's plenty of -- there is capacity out there.

STEWART: There is capacity, and actually Germany had nuclear power plants that they actually took offline. They moved away from nuclear that is a big

part of France's nuclear makeup. And perhaps, I think we'll see more.

But you're right. That was not really included, I would say in the press conference today.

QUEST: So we've got -- immediately, if they remove against -- if Russia switches off the tap --

STEWART: Which is a threat.

QUEST: Which is a threat, but if it does, or at least reduces, it can play all sorts of mind tricks with the Europeans. Where would they make up the


STEWART: From Russia?


STEWART: Well, this is the fascinating thing. You're looking at gas from Russia. They say they would like to sell more to China, and they would,


QUEST: No, no, no. The Europeans. Where would the Europeans make up -- where are they going to get the extra gas or oil?

STEWART: They're looking at, well, for oil, you could potentially look at more from OPEC countries like Saudi Arabia, if they were to agree. But

OPEC+ complicates the picture a little bit.

If you're looking at gas, liquefied gas, look at Qatar, perhaps, but also within their own countries. You know, Norway is a big gas producer as well.

QUEST: So the difficulty is though, as the U.K. has said, if they go down this road, prices go up for everyone. And a country like the U.K., which is

not a major importer of any Russian energy would -- from Norway and elsewhere, the prices -- the rising price is going to lift all bills.

STEWART: It is going to lift all bills, that's already here, that's already baked in. We're already looking at oil prices every day reaching

multiyear highs. And on the reliance, I think it is really interesting to see how reliance differs between the U.S., Europe and the U.K. We've got a

really good chart that we can show you and this is exactly why each bloc, each country has announced a very different timeline as to how they're

going to wean themselves off Russian gas.

This is why.

QUEST: We talk a lot about oil, but it's gas really that is the big issue here, isn't it? It's gas that is the --

STEWART: For Europe, particularly for Europe. For Europe, it's going to hurt. They rely on Russia for 40 percent of gas.

QUEST: So what about this comment from the Russian Deputy Minister that says if you're not careful $300.00 a barrel?

STEWART: And it wasn't even a thinly veiled threat.

QUEST: No, no. There was no veil on it at all.

STEWART: There was no veil. $300.00 a barrel. This is interesting. Yesterday, we had a number of estimates from bank analysts as to where oil

could go in the event of Russia entirely being removed from the oil market and the top limit I saw was $200.00.

It's hard to predict. It really depends where oil would be coming from elsewhere. If OPEC moved, perhaps to bring it down, $300.00 seems like a

lot to me, but you're the expert.

QUEST: No, you are tonight. Three hundred, is it possible? Yes. $300.00 is possible if there was a collapse in Russian supply at winter, I am not sure

$300.00 at the summer would be possible. But $300.00 at the winter, absolutely.


Collapse in Russian supply, no ability for anybody else to take -- to pick up the slack, and then you end up with febrile markets and panic.

STEWART: The refusal from OPEC to meet any kind of shortfall.

QUEST: But then you've got to -- we can't just keep going. All right, what a day though, right? What a day.

STEWART: What a day.

QUEST: Anna Stewart, thank you.

It's QUEST BUSINESS LIVE tonight from London.

Good evening to you.


QUEST: Ukraine's President is vowing to continue the fight for his country's survival, saying they will not give up in his words, whatever the


Some 3,500 Ukrainians and foreign students have managed to evacuate from the city of Sumy today. President Zelenskyy is renewing calls for the West

to help protect Ukraine and the President received a standing ovation when he addressed the British Parliament via video link.


VOLODYMYR ZELENSKYY, UKRAINIAN PRESIDENT (through translator): We will not give up and we will not lose. We will fight until the end at sea, in the

air. We will continue fighting for our land whatever the cost.

Please make sure that you do what needs to be done and what is stipulated by the greatness of your country.

Best of all to Ukraine and to the United Kingdom.


QUEST: And the British government is being criticized for its response to the crisis of refugees. U.K. visa requirements have been described as

lengthy and complex. The U.N.'s Refugee Agency says the number of people fleeing or trying to leave Ukraine has now reached two million. This gives

you an idea of where they are going.

You can see these are some of the people who made it to Romania earlier today. The U.N.'s top official for refugees is calling the current

situation terrifying.

Meanwhile, Kyiv's military administration says people they're being forced to shelter for days in bomb shelters without food or water as ITV's Rohit

Kachroo shows us, those trying to escape the capital are now facing dangers of a very different sort.



ROHIT KACHROO, ITV NEWS CORRESPONDENT (voice over): To cross the river is perilous, to not cross it is far more so.

UNIDENTIFIED MALE: (Speaking in foreign language.)

KACHROO (voice over): This is the escape from Irpin' where the lucky leave alive, as the sand of shelling loom closer --

UNIDENTIFIED FEMALE: (Speaking in foreign language.)

KACHROO (voice over): Not everyone had the good fortune to be able to run.

This was hardly a dash to safety, but it was no less desperate. An elderly woman struggling to keep up. Other evacuees streaming past as she inched

towards safety.

KACHROO (on camera): What was -- tell me what last night was like?

UNIDENTIFIED FEMALE (through translator): It was hell. It was scary and it was hell. It was her hell.

KACHROO (voice over): Then we spot another group emerging from underneath the broken bridge, some have left with few possessions from long and

settled lives, but if this looks like agony, imagine those they left behind.

UNIDENTIFIED FEMALE: I panicked a lot, especially at night, but these sounds as you can hear now is not comparing to the struggling this night

because it was light and bombing and the whole buildings shaking and we have been sitting in the building like half the night.

KACHROO (voice over): They've now reached the end of one road, the start of another.

UNIDENTIFIED FEMALE: (Speaking in foreign language.)

TEXT: Stay closer to me my sunshines, please.

KACHROO (on camera): Where are you going now?

UNIDENTIFIED MALE: To Kyiv railway station.

KACHROO: And where are you going after that?

UNIDENTIFIED MALE: After I -- my family go to East, I go to war.

KACHROO: You're going to war?

UNIDENTIFIED MALE: Yes, it's my land.

KACHROO (voice over): Then another evacuee arrives with news from the town beyond Irpin'.

UNIDENTIFIED MALE: (Speaking in foreign language.)

KACHROO (voice over): "It's done for," he says. Everyone has been killed. A moment to reflect does nothing to help.

UNIDENTIFIED FEMALE: (Speaking in foreign language.).

TRANSLATION: How can you talk about humanity in this world when the whole country is being destroyed?

We are a small country, but we have everything. We are happy with everything.

How can the whole wide world allow our country to be wiped from face of the earth?

KACHROO (voice over): The next stop is towards Kyiv, along the same route Russian troops want to take.

UNIDENTIFIED FEMALE: (Speaking in foreign language.).

TRANSLATION: We are going to the train station, that's all we know.

We are just fleeing, we'll go wherever we can. It's not organized.

KACHROO (voice over): We're invited into one of the tower blocks in the path of Russia's advance where for now, some refuse to go anywhere.

KACHROO (on camera): So why doesn't she leave and get on one of those buses outside?

UNIDENTIFIED FEMALE (through translator): I don't know. I don't have an answer for that.

KACHROO (voice over): At Kyiv's Central Train Station, those who did leave Irpin' are taken west as far as they can go. One man tells us he was hit by

Russian bullets on his way here.

KACHROO (on camera): Who shot you?

UNIDENTIFIED MALE: (Speaking in foreign language.).

TRANSLATION: Russian soldiers. I saw their vehicle with the letter V on them.

KACHROO (voice over): Across the waiting room, he spots his wife. They'll travel to Lviv together.

UNIDENTIFIED FEMALE: (Speaking in foreign language.).

TRANSLATION: I think we've been very lucky.

UNIDENTIFIED MALE: (Speaking in foreign language.).

TRANSLATION: It's like another birthday.

KACHROO (voice over): They are not alone in making a journey which would have seemed unthinkable 10 days ago, an escape from shootings and shrapnel

means an escape from home.

All this is the painful consequence of the decision of one man.

Rohit Kachroo, ITV News, Kyiv.



QUEST: Now, as we've been talking earlier in the program, Russian oil accounts for a big share of global energy exports. So let's focus on the

economic war, if you will. It was the third largest exporter of crude oil products in 2019 behind only the UAE and Saudi Arabia, there you have the


Sanctions could take its pumps largely out of service, but the West would then have to look for alternatives. And if you look at the world's largest

oil producers, well, now Russia is number three, more than 10 million barrels a day. The U.S. has been filling out world top oil exporter, Saudi

Arabia to increase supply, but they're still saying OPEC+ will apply.

Iran is another potential replacement, but that's got all sorts of issues concerning U.S. sanctions and the like. And the same for Venezuela and

Maduro. It's outside the top 10, only half a million barrels a day and Maduro says he can pump three million, but that remains to be seen.

So Francisco Blanch is the head of Global Commodities Research for Bank of America, and joins us now.

The reality is, as I read in your note, the reality is that there is no quick fix to replace Russian oil and gas and to lose it would dramatically

increase the price.

FRANCISCO BLANCH, HEAD OF GLOBAL COMMODITIES RESEARCH, BANK OF AMERICA: Yes, that's exactly right. And, and to be honest, I don't really think we

can replace it even in a large way or, or even allow prices to go a lot higher.

Now, it doesn't seem that prices are that crazy high in the U.S., but remember, we have a very strong U.S. dollar value. Euro to dollar is $1.09.

The British Pound is scratching $1.30 against the U.S. dollar.

So consumers in other parts of the world are feeling the pinch a lot more than consumers in the U.S. because of that dollar strength. So there's

several factors that play into this, and yes, we have a major issue here at hand when it comes to sanctioning Russia.

QUEST: Right. So you've got the U.S. deciding that it is going to sanction oil and gas. The U.K. has done the same it says, but it is not in the same


I mean, can Germany, the Netherlands -- all the other countries that rely on it, what do they do if they don't want to destroy or harm their own

economies in the process? That's the catch 22 here.

BLANCH: That's exactly right, because remember, the price sensitivity of commodities is such that if you curtail, let's say 20 percent of Russian

exports, and Russia export is about eight and a half million barrels a day, because you mentioned it is the number three producer, it is actually the

number two exporter in the world.

If Russia's exports get curtailed by 20 percent, the price of oil is likely to increase by $30.00 to $40.00 a barrel, maybe more. So essentially, the

Russians will make up in price will they're losing in volume, while as the importers of oil and other raw materials will end up paying a much, much

higher price.

So it is almost like you end up hurting yourself more than you hurt the exporter at this point.

QUEST: If we look at other commodities, whether it's palladium, titanium, wheat, all these other raw materials, commodities that Russia produces or

Ukraine produces, that are now out of the market, we are seeing a dislocation in commodities across a vast array of different items.

BLANCH: That's right. We've been telling our clients for the last couple of weeks that there is going to be more inflation, more volatility, and

more basis risks, and what I mean by basis risk is the differential between gasoline and crude oil, between Brent crude oil and WTI crude oil, between

euros, which is the Russian crude benchmark, and Brent, we are seeing some of the biggest dislocations in commodity markets ever.

And one of our big concerns is actually, if you look at Russia and Ukraine combined, it's actually -- they are actually the largest suppliers of wheat

in the world, export markets, around 29 percent share, which could also impact food prices. In fact, it is impacting food prices in a meaningful


So that's a big risk we are running as well, not just running short on energy supplies, which again is critical to industry, critical to

consumers, but also food. I mean food is a big problem building up as well in the background here.


If Russia does not export, let's take the eight percent that was going to the U.S., so they can't export to the U.S., I guess that is -- you say that

the price rises because of that.

But at the same time, they've now got eight percent more oil that they can sell somewhere else to China or to somebody else. Does that not zero it


Well, it does. So three things can happen to commodity flows. I mean, it's in fact, pretty straightforward. Three scenarios that we have, compared to

all the political possibilities that you can discuss.

Commodities is only one of three things, either flows go back to what they used to be six months ago and they normalize, either -- or, alternatively,

we see exactly what you said, which is, the U.S. limits Russian imports, but then China picks them up. So we see a reshuffling of global commodity

trade, a new commodity world order, if you like.

And then there is a third possibility, which is the one that we are worried about, which is one where restrictions from Russian exports lead to big

surpluses and deficits. A little bit like we saw back in the Soviet Union times were Russia's commodity markets end up with enormous surplus where we

end up with huge, huge deficits in the Western markets and that could happen in some specific cases.

QUEST: So final question, and how -- was it realistic for the Deputy Minister in Russia to say, if you sanction or if we turn off the taps, you

will see oil going to $300.00 a barrel? That number is taking on a life of its own.

So tonight, sir, tell me, yes, it could happen, or be highly unlikely.

BLANCH: Well, so in our bad scenario, right? I mean, we talked about three scenarios. One scenario is that prices are going to spike to $150.00 a

barrel, and this is our baseline, okay. In our ugly scenario, we think prices could spike to $200.00 a barrel into the summer months.

And our ugly scenario only encompasses dislocation of half of Russian supplies. So, you know, you can do the math for the rest. If we see a full

shutdown of Russian supplies, the prices are going to be meaningfully above $200.00 a barrel.

But again, Russia would have no revenue. So, I'm not sure they are prepared to completely shut their supply of oil and gas out to the world because

that would also have big implications on Russian finances, and our economists are estimating that there will be already a 13 percent

contraction in Russian GDP this year -- this year, because of the existing set of restrictions on Russia.

QUEST: Right.

BLANCH: So you add that curtailment of energy, the reduction in GDP could be 25 to 30 percent. There could be a massive meltdown in economic activity

there. So I think they'll probably think twice about doing that.

QUEST: Francisco, as this moves on, we will need your assistance more often, and I'm grateful that you've joined us tonight on QUEST MEANS

BUSINESS. Thank you, sir. I appreciate it.

I promise you we were going to look at this from all different aspects of the economic world. Now as we continue, look at the markets, look at how

the big board performed today.

The big board is now up 87, but that is from being heavily down and heavily up.

In a moment.




QUEST: Hello, I'm Richard Quest, more QUEST MEANS BUSINESS in a moment.

From nickel to wheat, the conflict in Ukraine affecting the materials needed to keep the global economy running.

McDonald's suspending operations there. We'll get to the news headlines first.


QUEST (voice-over): Ukraine says a Russian general has been killed in battle in the city of Kharkiv. The Ukrainian defense ministry identifies

him as Vitali Gerasimov, a veteran of Russia's campaigns in Chechnya and Syria. Russian officials haven't responded and the U.S. cannot confirm it.

China says it's willing to take an active role in mediating the crisis. President Xi Jinping made the offer during a virtual meeting with the

leaders of Germany and France. He said the situation is worrisome and called on all sides to exercise restraint.

The leader of the far right group Proud Boys leader was arrested today charged with conspiracy in the January 6th attack in Washington. He and

others are charged with trying to stop the certification of Joe Biden's win of the 2020 presidential election. If convicted, faces up to 20 years in



QUEST: Another whipsaw day on the market. As the Dow rallied 500 points, it lost most of the gains, then started to climb again. And despite it all,

the Nasdaq is still a bear market, down over 10 percent. Other indices aren't far off.

Some big names much hit harder than others. JPMorgan, Visa, Boeing, all at 52-week lows for individual reasons. Interest rates in some cases but

economics and Russia and others. And investors in Amazon and other stocks highly geared to U.S. growth, the Fed rate hikes and the Russia attack put

this in -- and you see these tremendous losses in the market.

Mark Zandi is with me, chief economist at Moody's.

Last we spoke, we were going on about inflation and interest rates. Neither realized we would be in such a perilous economic state now. But I need to

know, inflation was a problem before.

How much greater a problem now, as oil goes through 130, possibly higher, and we end up with more supply chain issues?

Where does inflation go?

MARK ZANDI, ECONOMIST, MOODY'S ANALYTICS: Up, Richard. Nowhere else to go but up. I mean, it's tied right back to gasoline prices.


Before Russia invaded, you could get a gallon of regular unleaded nationwide three buck 50, maybe less than that. Last I looked we're at

$4.17 a gallon. If we stay at these oil prices, we're at $4.50.

And, of course, gasoline goes into a lot of transportation, food, production of different commodities and goods. So the inflationary effects

are going to be significant.

QUEST: And in that case, I mean, at 6-7 percent, the Fed said they expected it would come down on its own but the Fed is going to raise rates

to bring it down. I'm guessing, I mean, if all of this crisis adds more to it, the Fed can't act faster because economies are so fragile anyway.

They're in an impossible situation.

ZANDI: Yes, no, I mean, what do you do with this if you're the Fed?

Obviously, the higher gasoline prices is a hit to the economy, not as bad a hit as in times past, because the U.S. is more energy independent than 10,

20, 30 years ago. But it's still a negative so we get slower growth.

Then you have this higher inflation and, of course, we're all worried about inflation expectations because, if they start to rise, then you get into

this very kind of negative wage price dynamic that would be very difficult for us to digest.

And so what does the Fed do with that?

My guess is, at this point, they kind of try to thread the needle and don't change anything they were going to do before the Russian invasion. So, you

know, four, five, six rate hikes this year. And maybe start to wind down balance sheets midyear.

You know, they take all these crosscurrents, put it all together and say, I'm not changing anything until I see which way the winds are really


QUEST: What's the fear here besides the raw inflation?

Is it that consumers get skittish and decide to save, not spend?

Is there a scenario that you see that has either the U.S. or the U.K. or the E.U. going into a recession as a result of Ukraine and Russia?

ZANDI: Sure. I mean there's, you know, some pretty dark scenarios. I think the thing that worries me the most is, if inflation expectations really do

begin to rise, at that point, people say, hey, to their employer, you got to pay me more because I got to pay more for my gas and get to work and all

the other higher cost of living.

But this person says, OK, no problem, we can do that because they know, think I can raise prices on my customers and get to this (INAUDIBLE) cycle.

And the Federal Reserve and other central banks just aren't going to tolerate it, because they know in the long run, that's going to be even

more painful to get rid of that dynamic.

So they'll really step on the brakes, raise interest rates. And the economy will seize up at some point. That's a recession scenario, classic kind of

business cycle.

QUEST: So the markets. I understand, of course, the markets are just about impossible to forecast on any given day, we're now down on the Dow and up

on the Nasdaq. But my point is that any individual stock -- I can give you a reason why Ukraine, Russia, is affecting it.

But the market overall is repricing risk. And I guess no one knows how far down that risk is going to go.

ZANDI: That's absolutely the case. I will say, though, you know, kind of the same perspective on things, since Russia invaded Ukraine or it became

obvious they were going to, the market's gone up.

And as you pointed out, goes up, down, over days, all over the map. But if you look at the price today, not all that different from where it was when

Russia invaded. So investors are saying, obviously, this isn't great, I don't like this.

But they aren't saying, you know, pricing in recession downwards. So as long as that continues, I think we'll be OK. That's a good indicator to

watch, to gauge how things are going to play out going forward.

QUEST: Mark, we'll need your help in the days and weeks ahead, sir. I'm grateful you joined us. Thank you.

It's QUEST MEANS BUSINESS. Now Russia appears to be threatening Europe's gas supply. The leverage and the critical resources it controls, all those

things, the wheat that goes into basically making the world tick, in a moment.





QUEST: The Kremlin appears to be threatening to cut off natural gas to Europe. On state media, deputy prime minister Alexander Novak said it would

have a dire impact on European gas prices, the $300 level.


ALEXANDER NOVAK, RUSSIAN DEPUTY PRIME MINISTER (through translator): Gazprom fully fulfills its obligation to supply gas to Europe. Moreover,

the supply through the Ukrainian gas transportation system has been increased.

In connection with the unfounded accusations against Russia and the imposition of a ban on Nord Stream 2, we have every right to take a mirror

decision and impose an embargo on gas pumping through the gas pipeline Nord Stream 1, which today is loaded at the maximum level of 100 percent.


QUEST: And gas prices in Europe already hit a record high earlier this month. And Western sanctions are sending the prices of other commodities

up. Wheat's nearly doubled from last year to an all-time high -- Russia's the world's largest exporter.

And 11 percent of the world's nickel also comes from Russia. The price -- look at that. I mean, you can see, so much so that the metal exchange had

to halt trading.

Sergey Guriev is the professor of economic and science. He joins me from Paris.

Sir, Professor, the -- how bad will the Russian economy be hit by the sanctions already offered and, much worse, of course, if oil is included?

SERGEY GURIEV, FORMER CHIEF ECONOMIST, EBRD: Hi, Richard, thank you very much for inviting me. Russian economy is in unprecedented deviation. It's

been hit by financial sanctions, hit by trade sanctions, been hit by exodus of oil investors, who voluntarily decide to cut any links with Russia.

The stock market has been closed for more than a week and will probably will not reopen tomorrow. The currency lost virtually half its value. And

indeed, as you said, the main question, if there is a joint gas and oil embargo -- because not just for U.S. but U.S., Europe and possibly other

major countries.

QUEST: So what everyone wants to know, how long can this continue?

Obviously, the economic condition makes people poorer and there's greater hardship and the value of money evaporates.

Are you expecting to see hyperinflation in Russia?

GURIEV: Well, we expect to see a burst of inflation in the coming months. It's inevitable, because there is a transmission from depreciation of the

ruble into higher prices.

Russia imports half of consumer goods, food, medicine, all price to dollar and forecast include -9 percent recession this year.


And that's compared to +3 percent growth forecast before the war. So it's going to be hit a lot. But the question is to what extent this hardship

will translate into political implications.

And for that, Mr. Putin has built a very impressive (INAUDIBLE) and propaganda (INAUDIBLE). And the next question is whether he has money to

pay his soldiers in Ukraine and his policemen in Russia to beat up (INAUDIBLE) and (INAUDIBLE) Russians who protest. And that is the question

of the oil embargo.

QUEST: OK, but to an extent, he can print his own cash. I mean, it may turn into worthless paper but keeping the ATMs full and going through this

fiction of, we are paying salaries in worthless money, Weimar Republic type stuff. But he can provide cash for bills.

GURIEV: That's something Mr. Putin has learned because he lived through the 1990s and many Russians have. And if anything, he is probably unlikely

to go through hyperinflation. He has a (INAUDIBLE) central bank at his side, which will probably let prices to rise once. But then will try to

raise rates, which is already done and control the inflation.

So I wouldn't expect hyperinflation but I would expect really big shock against the Russian (INAUDIBLE) of Russian household.

QUEST: That something -- we've never seen any country be exposed to, I mean, of size, you can arguably say, there are examples of smaller cases.

But of size, we've never seen a systemically important country to the global economy on energy, being hit with such sanctions.

So what do you expect happens next?

Give me guidance, Professor.

Where should I look for the fault lines in the Russian economy?

GURIEV: Well, Russian economy has been hit. As you said, it's a large economy, which is part of the global economy. It's interdependent with

Europe. Europe is its biggest partner but also with other countries.

And every single company depends on imports and access to export market, depends on financing and the financial system is in big trouble. You can

look at North Korea, Venezuela, Iran. But Russia has been part and parcel of the global economy.

So it's hit badly everywhere. And then as you introduce this part of your problem, the sanctions on Russia already show up in higher oil prices,

higher metal prices, because Russia is an important player. But apparently the West is ready to accept this pain because the security inside of Russia

leading to the war in Europe are too high.

QUEST: Professor, good to see you, sir. We'll need you to help us understand how things move on. Thank you, sir.

As we continue tonight, McDonald's is closing restaurants in Russia for now, a lot of companies are closing their restaurants or businesses. But

McDonald's is totemic and I'll explain after the break.





QUEST: Three major global brands are suspending operations in Russia, Starbucks announced it will suspend all business activity in the country.

McDonald's is temporarily shutting its restaurants, nearly 850. And that follows a move by Unilever to stop imports and exports.

McDonald's chief executive says, "Our values mean we cannot ignore the needless human suffering unfolding in Ukraine."

McDonald's is more than just an example, it's totemic in a sense, a unique place in recent history for Russia. It was 1990: Gorbachev, perestroika,

glasnost and McDonald's opened its first branch. And people stood in the cold for hours to get a Big Mac and fries.

The idea of consumer service was a novelty and people were used to direct Soviet-style hospitality. The arrival of American capitalism showed or

suggested change was on its way. As I say, capitalism market economy, perestroika; two years later, of course, the Soviet Union ceased to exist

as a country.

Nina is with me.

Nina, McDonald's started to pull out.

NINA DOS SANTOS, CNNMONEY EUROPE EDITOR: Even I remember those pictures, Richard, yes, 1990, 30,000 people queueing for a hamburger in the cold in

Moscow's Red Square, I think it was. It's amazing to think we've got to a stage where now McDonald's is ceasing operations in Russia so many years


Also because it has big operations in Russia, it relies upon Russia for about 9 percent of its revenues and 3 percent of its operating profits so

this is a really big deal.

Also, as the old adage used to go, two countries that have a McDonald's could not be at war with each other. Well, sadly, that is, obviously, not

the case of the last 13 days. They pulled operations out of Ukraine, obviously with the invasion and now they've suspended operations in Russia.

But they're going to keep staff paid. And that's an important point, because there have been ruptures among the Russian governments, that they

could seize assets of foreign companies that aren't paying --

QUEST: So we've got McDonald's. You've got Apple; you've got -- you know the list.

DOS SANTOS: Starbucks, just in the last few hours.

QUEST: Right. A, there's an element of sanctions, they're worried about breaking sanctions and that's an official sort of -- that's the general

counsel, that's the CFO, that's the -- but there's this moral question of, should we be there?

Should we continue to be there?

DOS SANTOS: Yes, that's right --

QUEST: And how are we balancing that (INAUDIBLE)?

DOS SANTOS: Well, some of them are deciding to front-run the problem by removing their operations or suspending them.

Now, obviously, the hint has been given very heavily by the Russian government that it would be good if they carried on paying their staff;

otherwise, their business might get nationalized.

So 200 of them have gradually sort of come out, the big names at first were people like H&M and IKEA. But a lot have followed suit. Some decided to

stay, like Uniclo (ph), who said we're going to continue operations in Russia because people need clothes.

And significantly Unilever has also pulled out in terms of exports and imports because that's a huge consumer goods company that people will

notice on the supermarket shelves. This is exactly the Western sanctions drafters were kind of hoping.


QUEST: But what is the time scale on this?

DOS SANTOS: In terms of how effective on the Russian economy?


DOS SANTOS: Absolutely, that is the trillion dollar question at this point. You can notice that the ruble obviously has plunged about 30

percent. I've had conversations with various people at the intersection of business, Western firms operating in Russia.

And over the last week or so, the first thing they've said is, I don't even know whether I'm going to be able to get my money out of the country, what

it will be worth, how Western franchise owners are going to be able to pay staff as well. These are the things we see playing out.

QUEST: I'm going to look at the markets.


While I look at the markets, we bring up the Dow and look at the chart, just tell me the word, is Russia uninvestable?

DOS SANTOS: Depends where you come from in the world, I suppose, from a sanctions point of view. My big bet is China might make some deals in

Russia and end up benefiting from that.

QUEST: Look at the markets there, you saw what was happening. It's a real strange day for the Dow, up and down, up and down, now down 100 points, we

were off several hundred, now up 600-700. It's not surprising. The triple stack shows similar sort of confusion.

We're down on all three now. I guess all we can say is after the 4 percent drop yesterday and the 3.6 percent drop on the S&P yesterday, the fact

we're just about even stevens is a blessing.

Caterpillar is up 7 percent. You don't see that everyday. And the reason is it's a hedge against, I guess, a hedge against other more volatile stocks

but also there will be reconstruction requirements and I guess Caterpillar stands to gain with that.

As for everything else, you pays your money, you takes your choice. A "Profitable Moment" after the break.




QUEST: Tonight's "Profitable Moment," I ask your forgiveness if I do a personal musing tonight, because tomorrow, March the 9th, is my birthday. I

will be 60 years old, officially an old codger, if you will.

I grew up in the 1960s and '70s, toward the Cold War's height, when things were really worrying about what would come next. Then through the '80s and

perestroika and glasnost and onwards and upwards, it seemed like all that had gone away.

But now, this weekend, I'm newsed (ph) on that. I was flying from Saudi Arabia up to the United Kingdom. You can see the route we took. We avoided

Ukraine completely and we came up into the U.K. over Germany.

The captain said on the right, you have Amsterdam, on the left you have Brussels. And I took a picture from the plane so you could see. And all I

could think of, as I flew over Europe, is, my goodness, they're fighting hand-to-mouth (ph) down on the ground in Europe again.

And so as I celebrate my birthday, I wish you all the very best, because no one knows how this is going to end. And we say it always, whatever you're

up to in the hours ahead, I hope it's profitable.

$4.17 a gallon and climbing. "THE LEAD" starts right now.