The war between Russia and Ukraine has found a new battlefield after another turbulent weekend for the global financial markets.
"This is in effect a financial war now," warned Deutsche Bank strategist Jim Reid in a note on Monday.
Deutsche Bank's commentary comes as Western allies moved to block "selected" Russian banks from the SWIFT payment system. The decision essentially denies Russia access to financial markets globally and opens its economy up to a potentially severe decline.
[For more on SWIFT, check out the latest Yahoo U.]
Russia's central bank reserves have effectively been frozen amid the decision, notes Reid. The country had about $630 billion of foreign reserves, a majority of which likely resides directly with G10 banks and central banks, says Reid.
"The design of these sanctions is to inflict significant damage on the Russian economy while maintaining the flow of Russian oil and natural gas exports. These sanctions will almost certainly hit their mark on the Russian economy which now looks headed for a deep recession and the imposition of capital controls," JPMorgan strategists said in a note of their own.
Meanwhile, oil giant BP said it would divest its 19.75% stake in Russian controlled oil company Rosneft. The action will come with a hefty $25 billion charge. BP has done business in Russia for three decades.
"It's fair to say that the stakes are enormously high. If you were assessing the current situation, you would now have to at least consider some pretty bleak outcomes," Reid added.
Markets wasted no time pricing in those potentially bleak outcomes.
The Russian ruble crashed more than 20% Monday as the country's citizens reportedly began to line up at ATM machines to withdraw cash.
Russia's central bank responded by raising a pivotal interest rate to 20% from 9.5%. The Bank of Russia has also moved to limit foreign sales of securities by brokers, reports The Wall Street Journal.
Futures in U.S. markets tanked. The Dow futures dropped about 400 points, or 1%, as of 6:00 a.m. ET. The S&P 500 and Nasdaq futures were down about 1%.
Brent crude oil popped 5% to above $102 a barrel.
"Russia is casting a long, dark, unpredictable, and very complicated shadow," said EvercoreISI Chairman Ed Hyman in a note to clients.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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