Effect of the sanctions imposed on Russia on the world economy


The aim of this literature review is to expand the topic of sanctions imposed on Russia as this
problem needs more research due to the novelty of the issue. Some papers have been already
published, so we can have a closer look on researchers’ thoughts. Sanctioning Russia affects not
only sanctionee but also imposers themselves. The purpose of the study is to investigate the
overall impact of financial and economic sanctions on Russia for the world.

Russia has been under the close supervision since the collapse of the USSR in 1991. Ever since 1992
Russia started its ‘conquest’ from entering the independent Moldova. This led to creating of
so-called Pridnestrovie (de facto ruled by Russia) which is absent on the maps and not acknowledged
by United Nations. However, serious steps have started to be taken since 2014 after Russian
annexation of Crimea. Russia is stated to be the most sanctioned country at the moment (Girardone,
2022).

The reviewed literature gives us the main understanding of the most common sanction typology and
tries to give an answer to the question: do the sanctions work at all? Not a lot of sources are
available at the moment as the topic has only started to draw attention of the scientists,
moreover, a few statistical data is available, especially from the Russia’s side. Many researches,
both theoretical and empirical, show that sanction policy has not demonstrated as much efficiency
as it was expected of. I observe the tendency of researches blaming European and Russian
codependency in import-export relationships. Hausmann et al. (2022) state that the main sanction
target is energy supply. Girardone (2022) refers to European Commission stating that 43% of EU’s
gas imports. Moreover, Mbah and Wasum (2022) refer to Jones (2022) highlighting that fertilizers
and agricultural products also take a big part of overall Russian exports. Here comes the
statement. “The EU accounts for 40% of Russia’s imports, but Russia constitutes only less than 2%
of EU exports” (Haussmann et al. , 2022).

When talking about sanction typology, Girardone (2022) argues, that at the moment there is no
commonly accepted classification, so author suggests the following: generally speaking,
restrictions towards Russia can be described as (i) individual sanctions, (ii) economic sanctions,
(iii) restrictions on media and (iv) diplomatic measures. Researcher gives a definition of
so-called smart sanctions to be ‘selective penalties that use financial institutions to put
pressure on specific groups, and directly impact governments, individual officials or elites (in
case of Russia, the oligarchs) (Girardone, 2022). van Bergejik (2022) argues with Western analysts
about calling sanctions imposed on Russia without precedent. To prove his point of view, author
gives examples of the experience with Iraqi invasion of Kuwait in 1990 and sanctions on Iran on
2012. Also researcher emphasize the fact that restrictions were already taken in 2014, but they
were not serious enough to prevent future events. Moreover, aggressor’s economy got stronger and
more prepared, so new sanctions did not give a desirable effect.

Hausmann et al. (2022) highlight that the main purpose of sanctions was to be a real substitution
of armed conflict, as it must motivate aggressor to surrender. Nonetheless, 2 out of 3 sanction
cases seem not to work at all (van Bergejik, 2022). Sanctioning countries that follow specific
ideology while starting a serious invasion is hard due to the unwillingness to change the course
and going ‘to the winning end’. In the literature I have studied authors agree with the narrative
of sanctions inefficiency. However, Schropp and Tsigas (2022) offer completely opposite point of
view. Authors conduct that the design of sanctions makes the difference. People might think that
this kind of penalty works on the principle ‘more is better’, but it is not the case. Mahlstein et
al. (2022) in their article use a computable general equilibrium (CGE) analysis to estimate
different possible outcomes for Russia and so-called ‘Allies’ (coalition of sanctioning countries).
Calculations show, that economic burden is distributed drastically different between Allies. The
main reason for it is that each country has their own sanction set. In addition, Russia answered
with countersanctions putting more pressure. Schropp and Tsigas (2022) also used CGE analysis but
in order to estimate optimal sanctions choice for Allies. Modelling revealed that sanctioners
should choose sanctioned sectors and extent of punishment wisely. It is better to target specific
sectors than organize a total embargo. In section 5 authors speculate on the topic of additional
strategies for Allies. Ideas are either to share the economic burden between Allies equally or to
donate to Ukraine extra generated tariff rents. Analysis and calculation showed that
‘burden-sharing between Allies (1) eradicate any controversial divergence in economic gain and
losses within the group of Allies, therefore achieving equitability of the sanction burden; (2)
decrease Allied average losses; and (3) increase economic harm for Russia, regardless of the
effects metric and the tariff increase chosen’ (Schropp & Tsigas, 2022).

The literature review has demonstrated wide-spread thought of sanctions inefficiency at the moment.
Researchers tend to claim that penalties in the way they are now cause more damage to sanctioners
than sanctionees and call for further empirical analysis. Existing models provided several options
for further Allies’ steps to minimize their losses and maximize negative impact on Russia’s
economy. Schropp and Tsigas (2022) and Mahlstein et al. (2022) believe that sanctions still can be
proved to be useful if measures are taken. This study is relevant because sanctioning one of the
biggest countries is a big precedent that cannot be easily overlooked by world society as it
affects not only Russia and Allies, but neutral states too.


References:

van Bergeijk, P. A. (2022). Economic sanctions and the Russian war on Ukraine: a critical
comparative appraisal. International Institute of Social Studies working paper, 699.

Girardone, C. (2022). Russian sanctions and the banking sector. British Journal of
Management, 33(4), 1683-1688.

Hausmann, R., Schetter, U., & Yildirim, M. (2022). On the design of effective sanctions: The case
of bans on exports to Russia. CID Faculty Working Paper Series.

Mahlstein, K., McDaniel, C., Schropp, S., & Tsigas, M. (2022). Estimating the economic effects of
sanctions on Russia: an allied trade embargo. The World Economy, 45(11), 3344-3383.

Mbah, R. E., & Wasum, D. F. (2022). Russian-Ukraine 2022 War: A review of the economic impact of
Russian-Ukraine crisis on the USA, UK, Canada, and Europe. Advances in Social Sciences Research
Journal, 9(3), 144-153.

Schropp, S., & Tsigas, M. (2023). Designing ‘optimal’sanctions on Russian imports. The World
Economy, 46(3), 498-531.