Russia’s and the EU’s sanctions: economic and trade effects, compliance and the way forward

20-09-2017

This report summarises empirical facts about the economic impact of the EU sanctions against Russia and the Russian countersanctions, both implemented in the summer of 2014. The observed decline in trade volumes between the EU and Russia is not only due to the sanctions, but also other economic factors, such as the downturn of the Russian economy, largely caused by the falling oil price and the ensuing ruble depreciation. Furthermore, empirical evidence suggests that European and Russian companies alike managed to partly divert trade flows to other international markets in response to the deteriorating trade relationships. Overall trade diversion, however, cannot nearly compensate for losses of EU exports to Russia and thus mitigate the economy wide negative impacts. Finally, descriptive evidence and additional information seem to indicate that compliance with the sanctions was partly circumvented right after the implementation of the sanctions in 2014, in particular for agri food goods via countries of the Eurasian Economic Union. Legal trade diversion through countries unaffected by the sanctions has also taken place. It is important to emphasise that this study does not assess the political costs or effectiveness of the sanctions, but merely analyses potential economic costs caused by all sanction measures in place.

This report summarises empirical facts about the economic impact of the EU sanctions against Russia and the Russian countersanctions, both implemented in the summer of 2014. The observed decline in trade volumes between the EU and Russia is not only due to the sanctions, but also other economic factors, such as the downturn of the Russian economy, largely caused by the falling oil price and the ensuing ruble depreciation. Furthermore, empirical evidence suggests that European and Russian companies alike managed to partly divert trade flows to other international markets in response to the deteriorating trade relationships. Overall trade diversion, however, cannot nearly compensate for losses of EU exports to Russia and thus mitigate the economy wide negative impacts. Finally, descriptive evidence and additional information seem to indicate that compliance with the sanctions was partly circumvented right after the implementation of the sanctions in 2014, in particular for agri food goods via countries of the Eurasian Economic Union. Legal trade diversion through countries unaffected by the sanctions has also taken place. It is important to emphasise that this study does not assess the political costs or effectiveness of the sanctions, but merely analyses potential economic costs caused by all sanction measures in place.

External author

Dr Oliver FRITZ, WIFO, Österreichisches Institut für Wirtschaftsforschung, Vienna (Austria) Dr Elisabeth CHRISTEN, WIFO, Österreichisches Institut für Wirtschaftsforschung, Vienna (Austria) Dr. Franz SINABELL, WIFO, Österreichisches Institut für Wirtschaftsforschung, Vienna (Austria) Dr Julian HINZ, Kiel Institute for the World Economy, Kiel (Germany)