BTIG Managing Director and Director of Policy Research Isaac Boltansky joins Yahoo Finance to discuss the flow of oil and other commodities amid the Russia-Ukraine crisis, the midterm elections, and the political implications of inflation.

Video Transcript

BRIAN SOZZI: All right, the US has leveled new sanctions on Russian elites and two banks as a first step in trying to prevent a Russian invasion of Ukraine. Let's break this down more with BTIG director of policy research, Isaac Boltansky. Isaac, always nice to see you. What's next here?

ISAAC BOLTANSKY: Good morning. So look, I think that my main point to clients is as follows. What we saw from the White House yesterday should be viewed as modest, relatively narrow, and highly unlikely to be the last word here. I think that we're going to have to wait and see what happens on the ground in Ukraine. But based on comments from numerous Western leaders, it appears that there will be more military action from Russia. At that point, we need to start thinking about what the next reaction from Western leaders and other members of the coalition will be.

My sense is that we should expect additional sanctions, so we should actually expect the scope of sanctions to be broadened to more banks than the two that were covered yesterday. And interestingly, Brian, I think we're going to start talking about export controls. That's a very meaningful issue that I think this White House in particular wants to focus on.

JULIE HYMAN: Isaac, something that I haven't heard a lot of people talk about is sort of the view on this whole conflict and our reaction to it from the American people. And then as we try to do some early extrapolation to the election, to the midterm elections, which everybody seems to have been doing lately, talking about how that's going to go, I'm just curious how you're viewing it and what you're telling clients on that front. Does this affect the midterms at all? Does it affect public opinion of the president and Congress?

ISAAC BOLTANSKY: Yeah, of course. Everything affects everything, right? So I think that we can cop out with that answer. But frankly, you know, Julie, I'm of the view that the House was already going to flip. Just historically, if you look back, the president's party, on average, loses 27 seats, right? Democrats have a margin of about four seats right now. So the odds were already overwhelmingly in favor of Republicans taking the House. So I haven't spent too much time trying to think through how this specific event is going to impact it because the odds are heavily in favor of divided government beginning next year.

In terms of the key political issue and one that I'll watch for some of these Senate races, it's energy prices, right? Inflation. It's the things that we were talking about before this issue in Ukraine. And so I think the two things that we should be aware of in terms of the broader conversation through a DC lens is, we will probably have a release from the Strategic Petroleum Reserve, although we've got a caution there. That SPR is at 19-year low levels in terms of its reserves. And there's a belief that this whole Russia-Ukraine issue is going to prove to be a tailwind for efforts to restart the Iran deal so that some of Iran's production can come back into international markets.

BRIAN SOZZI: Isaac, I want to go back quickly to what you mentioned at the top-- export controls as a potential next move here. What does that mean, and what would it mean to the US and Russia economies?

ISAAC BOLTANSKY: Yeah, so there are numerous ways, as we've seen in the past, that sanctions can be subverted or avoided. Expert-- excuse me-- export controls are a little bit different in that if you have buy-in from key nations-- and it looks as though the White House does have some support from key nations on the tech side. And here, I'm talking about Singapore, Taiwan, and Japan. Then it is possible to slow or completely stop the flow of key inputs like semiconductors or computer chips or other items that are necessary for any high tech economy as it grows.

And so, to me, that's where we're going to see this conversation continue over the next few weeks because sanctions can really only do so much. But a targeted effort to implement export controls with buy-in from other countries can really curtail the flow of key products into Russia, which is going to exacerbate some of the economic problems that it's already facing the country.

JULIE HYMAN: Right, and there's a lot of chatter this morning that Putin has improved the ability to withstand sanctions, but what you're describing is perhaps less easily withstood, all of this having upward pressure, causing upward pressure on prices. And we've talked to some people over the past few days who have said, as if the Fed wasn't sort of in a tight enough spot, this perhaps makes it even more challenging for them. What are you telling clients on that front as to how this feeds into-- as you say, everything affects everything-- how this feeds into that situation?

ISAAC BOLTANSKY: You know, look, the Fed already had the hardest job of anyone I know to manage expectations in the market over the next few months. My sense has been that we're unlikely to see the seven, eight plus rate hikes that some have suggested. I think that ultimately, the Fed will move on a more measured pace. But of course, this is going to impact the policy discussion, which is why I am particularly interested in seeing if things like tapping the SPR again or the potential for a Rand deal that releases new supply onto the market will actually have an impact on prices.

BRIAN SOZZI: Isaac, let me put you on the spot here before we go. If inflation does stay at these levels-- food inflation, gas price inflation, heating oil inflation for people's homes, you name it-- does this set the stage for President Biden to be a one-term president?

ISAAC BOLTANSKY: Yeah, look, I think there's a belief among some in DC that President Biden isn't going to run for a second term anyway, right? So I think that needs to be part of our consideration. But I will tell you that "inflation" is going to be the number one word that you hear on the campaign trail, especially for some of these Senate races. And what we can have confidence in is that inflation as a theme is going to be something that at minimum is going to give Republicans control of the House with a wide margin and makes them the slight favorites at this moment to take the Senate as well.

BRIAN SOZZI: All right, BTIG director of policy research, Isaac Boltansky, always good to see you. Have a good rest of the week.