By Mohamed A. El-Erian

The market reaction to repeated sanctions against Russia has tended to follow a pattern, with investors shrugging off the news after an initial sell-off. Still, the cumulative impact of sanctions is getting harder to ignore, and — particularly given the downing of a passenger plane in Ukrainian airspace — it could yet get much worse.

Citing the Kremlin’s continued interference in Ukraine, President Barack Obama announced that the U.S. would intensify its sanctions in the areas of defense, energy and finance, including placing restrictions on the financing of state-owned companies such as oil giant Rosneft.

European leaders followed suit, restricting new funding from the European Investment Bank and seeking to do the same for the European Bank for Reconstruction and Development. The moves represent another step along a well-specified path toward targeting first individuals, then companies and ultimately whole sectors where the Russian economy is particularly vulnerable.

The market's immediate negative reaction is well justified. The Russian economy will suffer from the reduced availability of financing and supplies, and from an increasingly uncertain operating environment. An impaired Russian economy will have spillover effects on major trading partners such as Europe, which will in turn weigh to some extent on the global economy.

The bigger question, though, is how close Russia and the West are to more comprehensive sectorwide sanctions in energy and finance — the kind that would hit the Russian economy hard enough to elicit countersanctions by Moscow on energy supplies to central and western Europe. Such an escalation, were it to occur, would tip both Russia and Europe into recession, dragging down the global economy. Russia's Western counterparties would also experience major operational disruptions, the nature and market impact of which would be hard to predict.

Markets have discounted such a lose-lose scenario on the assumption that rational politicians would do their utmost to avoid it. That's why they've tended to bounce back so quickly from previous sanction announcements, choosing instead to focus on other factors supporting equity prices, including central bank policies, merger-and-acquisition activity and the gradual healing of Western economies.

Yet in shrugging off sanctions, investors should be aware that there is little on the geopolitical horizon to suggest a lasting reduction in tensions, let alone a rebuilding of mutual trust. It’s not beyond the realm of possibility that politicians will take the conflict over Ukraine to the tipping point.