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Sanctions against Russia in 2014 had an effect, but their potential was far from being fully exploited

Press Release of February 21, 2024

Sanctions against Russia following the annexation of Crimea reduced consumption in Russia by 1.4 percent - Simulations show that the potential for sanctions could have been higher - Involvement of emerging economies would have increased sanction pressure - Sanctions caused greater losses for small economies in the proximity of Russia than for large economies - Burden-sharing funds could reduce asymmetries

With their sanctions against Russia, large economies such as Germany or the USA cause greater welfare losses in Russia than small economies. The economic pressure on Russia also increases if several countries coordinate their sanctions. These are the findings of a study by the German Institute for Economic Research (DIW Berlin) by DIW economist Sonali Chowdhry and researchers from the Kiel Institute for the World Economy (IfW). The authors of the study investigated how sanctions imposed against Russia in 2014 in response to its annexation of Crimea affected Russia and the sanctioning countries. In simulations, they investigated how the impact would have increased if the coalition had been larger or if the sanctions had been extended to a hypothetical trade embargo.

© DIW Berlin

According to the study, sanctions in 2014 reduced welfare in Russia by 1.4%, measured by the change in real consumption. In the hypothetically maximum scenario where a global coalition imposes a complete trade embargo on Russia, the losses would have increased tenfold to 15 percent. "The sanctions potential was therefore not fully utilized in 2014," says DIW economist Chowdhry. "If more countries had been involved or if the sanctions had also affected payment systems or energy supplies, as is currently the case, the economic damage for Russia could have been far greater."

Costs for sanctioning countries very heterogeneous

Two years after the start of the Russian war of aggression in Ukraine, the West's sanctions against Russia are being tightened again. "The current measures, which also impact Russia’s access to the international payment system SWIFT and its energy trade, certainly make better use of the sanctions potential compared to 2014," says Chowdhry.

At the same time, there is skepticism as to whether the sanctions do not burden the sanctioning countries more than they harm Russia. In fact, the costs for the sanctioning countries in 2014 were very heterogeneous. Small economies with geographical proximity to Russia in particular were heavily burdened by the sanctions, as they lose relatively many export opportunities. In contrast, the sanctions costs were lower for large economies such as the USA and Germany.

The authors of the study also investigate how a potential adjustment fund could equalize the burden between the coalition partners, from which harder hit economies would receive compensation for their losses. In the case of the 2014 sanctions, this fund would have had to amount to 4.9 billion dollars. "Burden-sharing could not only mitigate the adverse effects of sanctions on the implementing countries, but also increase the stability of sanctions coalitions and encourage the participation of other countries," says Joschka Wanner.

Emerging economies key to increasing deterrent force of sanctions

Emerging economies such as China, Vietnam or Brazil in particular could significantly increase the pressure on Russia within a coalition, by depriving Russia of opportunities to circumvent the sanctions. China's participation alone in 2014 would have increased Russia's losses by 22 percent. "It is unlikely that China will join a coalition against Russia," says Name. "But it is all the more important that the coalition members find alternative ways to come to a strategic arrangement with China and other emerging economies to limit sanctions-busting", Chowdhry says.


Chinesische Beteiligung an Sanktionen könnte Druck auf Russland erheblich verstärken - Interview mit Sonali Chowdhry

Topics: Markets

Sonali Chowdhry

Research Associate in the Firms and Markets Department