Economic response to military warfare may become increasingly common in Western nations.

• Russia has been sanctioned by the United States, the United Kingdom, and the European Union due to its military incursion into Ukraine.
• This week’s action in the region has whipsawed global financial markets.
• Global stability is at risk due to armed conflicts, and nations may respond with economic measures.

The threat of World War III has haunted the planet since the mid-20th century with the advent of thermonuclear weapons.

But a new global risk is emerging: the advent of economic warfare.

The threat of armed military conflict to global stability is evident in the Russian invasion of Ukraine. In response to kinetic warfare, the response may increasingly be economic.

If Russia faces sanctions from the West, other countries may also face similar penalties if they become more militarily aggressive.

The U.S., U.K., EU, India, Japan, South Korea, and Australia may face a multifront military challenge if China decides to move on Taiwan, following its close monitoring of the West's response to Russia's attempted annexation.

It is highly unlikely that allied nations would attempt to fight Russia and China in the streets of Kyiv and Taipei, as doing so could lead to a nuclear war.

Instead of imposing economic sanctions on Russia and China, a more effective approach would be to use broad and deep sanctions that isolate them from the Western democratic and capitalist world.

Old enmities have surfaced

It is now possible that old animosities and adversaries have resurfaced in international relations.

The world economy is in the process of deglobalizing just as the geopolitical divide has reemerged. Previously, globalization was believed to be a stabilizing force that would align international economic interests and minimize the risks of devastating global warfare.

Unfortunately, it appears that the ghosts of a supposed past have resurfaced, indicating that "the end of history" was merely a theoretical idea with no foundation in fact.

The pandemic exposed the trade-off between supply chain efficiency and security.

In the current context, the likelihood of economic warfare becoming more prevalent is infinitely higher as each country strives to rebuild both critical infrastructure and domestic industries.

Global economic consequences

It will bring consequences for the global economy and financial markets.

Global markets have been reeling from the invasion of Ukraine.

Despite the increase in oil prices, the Russian stock market, which had already decreased significantly since October's peak, experienced a further decline of over 30% this week.

Before the complete implementation of Western sanctions.

If Beijing were to move on Taiwan, a similar and punitive set of sanctions could be aimed at it, targeting the Chinese Communist Party's elite, the country's billionaires and wealthy generals, and cutting China off from Western markets, which are crucial for its economic growth.

If that moment comes, it will not eliminate the risks of kinetic warfare, especially on a regional scale.

Economic warfare could disrupt growth and stability, particularly if it involves cyberattacks that target critical systems, such as financial transfers and critical infrastructure, including water purification and global electrification.

The U.S. is as unprepared for a retaliatory response as Russia and China are for isolation from the world.

The war that this generation may face next could have long-lasting and severe consequences, although it may not be the war our generation has always feared.

— Ron Insana is a CNBC contributor and a senior advisor at Schroders.