The potential breakdown of trade relations between Russia and Germany could lead to a financial crisis, predicts the head of economics at Standard & Poor's.

• The breakdown of trade relations between Germany and Russia could negatively impact German manufacturing, which is one of the three leading manufacturing hubs globally, according to S&P Global's Chief Economist Paul Gruenwald, as stated on CNBC's "Squawk Box Asia."
• In 2021, the trade between Germany and Russia increased significantly, with the value of goods traded rising by 34.1% to 59.8 billion euros ($65 billion), as reported by Germany's Federal Statistical Office.
• Wood Mackenzie, a research and consultancy firm, cautioned that the global economy may experience "more permanent changes" as a result of the crisis, including a potential alteration of global trade.

If there's a "trade rupture" between Russia and Germany, a financial shock could occur, according to S&P Global's chief economist.

According to Paul Gruenwald, a trade rupture between Russia and Europe could have a significant impact on the global economy.

Whether Germany stops buying or Russia cuts off the gas, it's not just about cutting off the supply.

In response to Russia's unprovoked invasion of Ukraine, several world powers, including the U.S., Japan, and Canada, have imposed sanctions on Moscow. The European Union is considering banning oil imports from Russia and has pledged to eventually reduce its dependence on Russian gas by two-thirds.

Russia has demanded that "unfriendly" countries pay for gas in rubles, referring to those that have imposed economic sanctions on Russia due to its invasion of Ukraine.

Approximately 40% of the European Union's natural gas comes from Russian pipelines, with a quarter of that flowing through Ukraine. On the other hand, Germany obtains roughly half of its natural gas from Russia.

Gruenwald stated that Europe imports industrial inputs such as nickel and titanium, in addition to having an energy complex and commodity prices.

Wood Mackenzie, a research and consultancy firm, cautioned that the global economy may experience "more permanent changes" as a result of the crisis, including a potential alteration of global trade.

The war in Ukraine emphasizes the significance of having dependable trading partners, as the Covid-19 pandemic brought to light the need to shorten supply chains, according to research director Peter Martin in a Tuesday note.

A lasting realignment of global trade could result from these forces, leading to a more regionalized global economy with shorter supply chains and dependable partners.

Trade between Germany and Russia

A breakdown in trade relations between Germany and Russia could negatively impact German manufacturing, which is one of the three leading manufacturing hubs globally, according to Gruenwald.

If the economy experiences a slowdown, it could lead to lower GDP, fewer jobs, and decreased confidence, potentially causing a macro financial shock. This is a concern that could significantly impact the economy.

In 2021, the trade between Germany and Russia increased significantly, with the value of goods traded rising by 34.1% to 59.8 billion euros ($65 billion), as reported by Germany's Federal Statistical Office.

Last year, Germany's imports from Russia increased significantly, by 54.2%, while its exports also increased, although at a slower rate, by 15.4%.

Germany primarily exported vehicles, machinery, trailers, and chemical products to Russia, while Russia mainly exported crude oil, natural gas, metals, and coal to Germany, according to the agency.

In 2021, Germany's fourth most significant import country outside the EU was Russia, accounting for 2.3% of its total foreign trade.