Stephen Roach says Russian default would hit emerging markets — and China

Stephen Roach warned that the effects of a default on Russia's debt would spill over to China.

There will be spillover effects on emerging markets around the world if Russia does default on its debt.

Roach, a senior fellow at Yale University, said that China cannot afford to stay in close alignment with Russia as it mounts this truly God-awful campaign against innocent Ukraine right now.

He said that the sooner China breaks with Russia, the better.

The U.S. imposed sanctions on Russia after it launched its assault on Ukraine. The country's rating has been slashed by major ratings agencies because of Western sanctions.

China will not participate in the sanctions against Russia.

Last week, major global index providers announced that Russian stocks will be pulled from their indexes. The MSCI Russia index will be reclassified to standalone markets rather than emerging markets.

The London stock exchange suspended trading in 27 Russian securities. By the time the suspension was announced, nearly all their value had been wiped out.

The price of oil went up in Asia after the Secretary of State said that Washington and its allies are considering banning Russian oil and natural gas imports.

At one point, U.S. crude was almost 9% higher to above $130 per barrel, while global oilBenchmark was almost 9% higher to about $128 per barrel. Both hit highs not seen in a long time. U.S. crude was recently trading 7.49% higher at $124.35, while Brent was recently trading 8.85% higher at $128.66.

Russia is the world's third-largest oil producer. It is the largest exporter of crude oil to global markets.

Roach told CNBC that higher oil prices are a sign of deflation.

Stagflation occurs when the economy is stagnant and inflation increases. The phenomenon was first recognized in the 1970s when an oil shock caused an extended period of higher prices but lower GDP growth.

It certainly does put pressure on central banks around the world and raises the prospects of higher interest rates as a result, but it remains to be seen if this trend is going to continue for many years.