Sanctions on Russia

Publication Category: Financial

Since Russia’s full-scale invasion of Ukraine in 2022, financial sanctions have become one of the most prominent tools used by Western governments to limit the Kremlin’s economic capacity and constrain its ability to fund the war.

  • The (In)effectiveness of Sanctions: An Attempt at Evaluating the Effectiveness of the Sanction Policy Against Russia

    The (In)effectiveness of Sanctions: An Attempt at Evaluating the Effectiveness of the Sanction Policy Against Russia

    The paper seeks to evaluate the effectiveness of sanctions imposed by the European Union, the United States, and their allies on Russia in response to the 2022 invasion of Ukraine. Specifically, it examines how these measures have impacted Russia’s economy and ability to sustain military operations. This question is particularly challenging due to the lack of reliable data from Russia and the complexity of measuring the multifaceted effects of sanctions.

    To address this, the authors analyze statistical data from Russian sources, media reports, and international publications. They assess economic indicators such as trade volumes, budget revenues, and sector-specific impacts while examining how sanctions have influenced Russia’s adaptability and resilience. The methodology focuses on both immediate and long-term effects, considering geopolitical, economic, and institutional responses to sanctions.

    The findings highlight mixed results. On one hand, sanctions have constrained Russia’s access to international financial systems, reduced imports from the European Union, and placed significant pressure on sectors like automotive, technology, and metallurgy. However, the Russian economy has displayed surprising resilience, driven largely by high global energy prices, reorientation of trade toward Asia, and government interventions like currency controls and support for key industries. Despite this short-term stability, the authors suggest that the sanctions could lead to long-term economic isolation, reduced investment, and eventual structural weaknesses. They conclude that while sanctions have not yet achieved their primary goal of halting Russian military aggression, although they have constrained certain aspects of the Russian economy. The authors highlight that the long-term effectiveness of sanctions depends on sustained pressure, better coordination among sanctioning countries, and the gradual erosion of Russia’s economic stability through reduced energy revenues and investment flows. They conclude that the sanctions have pushed Russia toward increased economic isolation and a “Sovietization” of its economy, but their ultimate success in achieving political goals remains uncertain.

    The policy implications of these findings suggest that sanctions need to be sustained over the long term and continuously adapted to target Russia’s economic vulnerabilities more effectively. This includes reducing European dependency on Russian energy imports and tightening measures to prevent circumvention of sanctions. While short-term impacts may be limited, a prolonged and comprehensive sanctions regime could strain Russia’s economy, especially as global energy prices normalize, potentially leading to deeper economic and political consequences.

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  • The Impact of the Russia–Ukraine War on Volatility Spillovers

    The Impact of the Russia–Ukraine War on Volatility Spillovers

    The paper explores the impact on volatility spillovers across various financial markets (stock, currency, commodity, energy markets). Both the sanctions and war led to increased market instability, with the ruble playing a central role in transmitting volatility to other sectors.  The implementation of SWIFT sanctions against Russian banks amplified volatility, especially from the ruble to other markets, though this effect diminished after Russia’s response to the sanctions.

    The analysis shows that volatility spillovers were initially most intense due to the uncertainty surrounding the war’s outcome. As the war continued, the shock was absorbed by the markets. Ruble was identified as a primary source of volatility spillovers and systematic risk spread increase, particularly affecting commodity and currency markets.

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  • The Effects of Sanctions on Russian Banks in TARGET2 Transactions Data

    The Effects of Sanctions on Russian Banks in TARGET2 Transactions Data

    The paper explores the effects of financial sanctions on Russian banks looking at individual-account cross-border transactions. Findings indicate that sanctions, especially disconnection from SWIFT and fund freezes, significantly reduced financial transactions. Inflows and outflows of payments of sanctioned Russian banks in TARGET2 were effectively reduced by up to 92% . Results for a sample including Belarus are the same. Spillovers to non-targeted banks and countries are negligible. Potential evasion of sanctions through other payment systems (such as CIPS, not observed) cannot be ruled out.

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  • Economic Sanctions: Evolution, Consequences, and Challenges

    Economic Sanctions: Evolution, Consequences, and Challenges

    The authors describe the 2022 sanctions against Russia, triggered by the invasion of Ukraine, as notably broad and powerful – the largest such measures ever targeted at a substantial economic power. From their perspective, this coordinated response stands apart from previous sanction episodes in both scale and international reach. They point out that, for the first time, a large cluster of World Trade Organization members revoked privileges such as Russia’s most favored nation status, relying on WTO rules that permit trade barriers in cases of essential security threats.

    These punitive steps extend beyond traditional restrictions on trade. They include cutting off Russia’s access to global credit, freezing important assets, and limiting the travel of prominent individuals and business figures. There is also a concerted effort to halt the flow of goods with potential military uses, all in an attempt to weaken Russia’s capacity to continue its campaign in Ukraine.

    The authors stress that even the most vigorous sanctions often face challenges in practice. Some countries may not strictly enforce the measures, while others could see chances to make up for lost trade or investment. With Russia’s economy being large enough to matter to global markets, concerns arise that major third parties, such as China or India, might fill the gaps, undercutting the intended effects. Because of this, sanctioning nations, especially the United States, have threatened additional penalties on outside actors if they help Russia bypass the restrictions.

    Whether these measures will definitely change Russia’s actions remains an open question. In the authors’ view, the sanctions are likely to impose lasting economic costs, both on Russia and on the nations applying or complying with the restrictions. Despite these burdens, there is no guarantee that they will directly persuade Russia to halt its military activities. However, constraining Russia’s ability to finance and replenish its armed forces could indirectly influence the conflict’s course, potentially affecting developments on the battlefield.

    In the bigger picture, the Russia-Ukraine case highlights how sanctions have evolved into a tool employed by a wide network of countries for urgent security concerns, rather than strictly economic disputes. It also illustrates how modern sanctions can ripple well beyond the immediate target, creating dilemmas for allies, partners, and global institutions. The authors emphasize that this situation may further encourage major powers to reduce their vulnerability to foreign pressure, possibly spurring new financial and commercial alignments and challenging longstanding global trade rules.

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  • Financial market information flows when counteracting rogue states: The indirect effects of targeted sanction packages

    Financial market information flows when counteracting rogue states: The indirect effects of targeted sanction packages

    The financial sanctions imposed on Russia in response to its invasion of Ukraine not only targeted the country’s banking system but also sent shockwaves across global financial markets. This paper investigates how these sanctions influenced market contagion effects, particularly in non-targeted economies, shedding light on the unintended consequences of politically driven financial restrictions.

    The study finds that sanctions, especially those aimed at Russia’s financial institutions and its exclusion from the SWIFT payment system, initially created significant turbulence in international markets. Investors reacted swiftly, with markets in Europe and the UK showing the strongest signs of instability, the US experiencing a slightly milder hit, while Australia and Canada were relatively insulated from these effects. However, as financial actors adjusted to the new conditions, the intensity of these disruptions declined, illustrating how markets adapt over time to geopolitical shocks.

    A crucial insight from the study is the role of Russian market volatility in transmitting financial instability beyond its borders. Volatility spikes in Russian equity markets, captured by the Russian Volatility Index and turbulence in the Russian banking index, both amplified by banking-sector restrictions, emerged as the dominant channels through which instability spread to other international financial centres. While the intended goal of isolating Russia’s economy was achieved to some extent, the study highlights that these measures also had ripple effects on international stock markets and banking sectors, impacting financial efficiency in ways that were not entirely anticipated.

    The authors warn that, although targeted financial sanctions do impair Russia’s market influence, their repeated deployment can dilute effectiveness and disrupt global price-discovery dynamics, so any future packages must be carefully coordinated and proportionate to contain unintended spillovers.

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  • Sanctions on Russia’s central bank

    Sanctions on Russia’s central bank

    Sanctions on Russia’s central bank were among the most aggressive financial measures imposed following the invasion of Ukraine, aiming to compromise Moscow’s economic stability and limit its ability to finance the war. This study examines the impact of these restrictions, particularly how they affected Russia’s currency, international borrowing capabilities, and access to foreign reserves.

    One of the most immediate consequences was the sharp drop in the ruble’s value in early 2022. However, the currency quickly recovered due to capital controls and decreased imports, only to begin sliding again in 2023. Despite this rebound, the ruble remains largely isolated from global financial markets. Even Russia’s key trade partners, such as China and India, have been reluctant to conduct transactions in rubles, limiting its role in international trade.

    Beyond currency devaluation, sanctions have severely restricted Russia’s access to international credit markets. The country has been unable to borrow from global financial institutions and was forced into default on its foreign debt, as most creditors refused to accept ruble payments. While Russia has attempted to compensate by relying on its gold reserves and yuan-denominated assets, these alternative holdings have not been sufficient to fully offset the effects of financial isolation.

    China’s role in this process has been particularly complex. While Beijing has increased trade with Russia and purchased Russian commodities at discounted rates, it has been unwilling to provide large-scale financial support or openly challenge Western sanctions. The risk of secondary sanctions and China’s dependence on U.S. dollar transactions have deterred it from fully assisting Russia in circumventing financial restrictions.

    Despite these pressures, Russia has continued to accumulate assets through ongoing oil and gas exports, partially rebuilding the reserves frozen by Western governments. This suggests that while sanctions have created significant financial constraints, they have not fully crippled the Russian economy. The study argues that for these measures to remain effective, Western policymakers must develop more advanced tools to track Russia’s hard currency flows, prevent financial loopholes, and further restrict access to global financial networks. Without enhanced enforcement mechanisms, Russia may continue to adapt, mitigating the intended impact of financial sanctions.

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  • Revisiting the effectiveness of economic sanctions in the context of Russia’s invasion of Ukraine

    Revisiting the effectiveness of economic sanctions in the context of Russia’s invasion of Ukraine

    The paper explores the effectiveness of economic sanctions imposed on Russia in response to its invasion of Ukraine, utilizing a framework of five dimensions: compliance, subversion, deterrence, international symbolism, and domestic symbolism. The primary research question is whether these sanctions have achieved their stated and implied goals, such as curbing Russian aggression and influencing global perceptions.

    The authors analyze the sanctions’ outcomes across these dimensions by reviewing economic, political, and social impacts on Russia since the sanctions began. They focus on changes in Russian behavior, domestic and international perceptions, and the implications for global geopolitics. The methodology includes qualitatively evaluating economic indicators, political stability, and public opinion data.

    The analysis suggests that sanctions have been partially effective in terms of compliance, as they have contributed to Russia’s adjustment of its military strategy but have not halted its aggression. Subversion, the goal of destabilizing or changing the Russian regime, has so far been largely unsuccessful, as Putin remains in power and the Russian political system continues to function. However, sanctions so far appear effective in deterrence, discouraging further territorial expansion beyond Ukraine and signaling to other potential aggressors, such as China, that similar actions would lead to severe economic repercussions.

    Beyond direct strategic outcomes, the study finds that sanctions have been effective in the realm of international symbolism, reinforcing Western unity and demonstrating solidarity with Ukraine. They have also served as a tool of domestic symbolism, enabling policymakers in sanctioning countries to show firm action against Russian aggression, which has generally been well-received by their domestic audiences.

    While the paper acknowledges that sanctions have imposed significant economic costs on Russia, it also highlights the limitations of these measures in compelling immediate policy changes. Given the long-term nature of economic pressure, the authors argue that future assessments of sanctions should take a more interdisciplinary approach to understand their evolving impact.

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  • Lessons in Sanctions-Proofing from Russia

    Lessons in Sanctions-Proofing from Russia

    Adapting to sanctions has become a defining feature of Russia’s economic strategy over the past decade. Since the 2014 annexation of Crimea, and especially following the 2022 invasion of Ukraine, the Russian government has pursued a variety of “sanctions-proofing” tactics aimed at minimizing the impact of Western financial restrictions. This study examines the measures Russia has implemented to shield its economy, from creating domestic alternatives to Western financial systems to seeking new international partnerships.

    The study identifies four key strategies in Russia’s response. First, protectionist policies have been used to insulate sanctioned entities, promote import substitution, and ensure that key industries remain functional despite restrictions. The government has encouraged the use of domestic payment systems like Mir to replace Visa and Mastercard and has introduced tax-free zones to attract capital back into the country. Second, Russia has actively sought economic partnerships outside the Western sphere, deepening ties with China and engaging with African and Middle Eastern nations to counterbalance lost trade with Europe. Third, Moscow has employed retaliatory measures, such as countersanctions on Western goods, aiming to deter further economic penalties. Finally, efforts to reduce reliance on the U.S. dollar have played a significant role in Russia’s strategy, with the country shifting its foreign reserves toward gold, the Chinese yuan, and the euro—although the effectiveness of this de-dollarization has been limited by multilateral sanctions.

    Despite these adaptations, the study argues that sanctions have still inflicted significant constraints on Russia’s economy. The strength of the U.S. dollar and the dominance of Western financial institutions have made it difficult for Russia to bypass restrictions entirely. Many firms, even in non-sanctioning countries, have reduced their dealings with Russian businesses due to the risk of secondary sanctions. Moreover, the swift and coordinated response from the U.S., EU, and Japan in sanctioning Russian reserves has made it harder for Moscow to mitigate the effects of financial isolation.

    The study concludes that while sanctions-proofing strategies can blunt the immediate impact of restrictions, they do not fundamentally alter the challenges faced by a sanctioned economy. Russia’s ability to continue funding its war effort suggests that financial sanctions alone may not be enough to compel policy changes. Instead, the study highlights the need for a aligned diplomatic and economic strategy that goes beyond punitive measures, recognizing that a well-prepared state can adapt to sanctions—but not without consequences.

  • Economic sanctions against Russia: How effective? How durable?

    Economic sanctions against Russia: How effective? How durable?

    The author observes that sanctions on Russia have multiple aims: to deter aggression, punish military offenses, and impede Russia’s economic ability to wage war. While they did not stop the invasion outright, they have sharply constrained Russia’s finances, trade links, and military-industrial capacity. Russian import volumes dropped significantly in 2022, reflecting both self-imposed export reductions and Western restrictions. Though Russia continues to earn revenue from oil and gas, European embargoes and the G7 price cap are beginning to reduce these earnings. Formerly the EU was Russia’s main energy buyer, but sales have shifted to China and India, often at a discount and with elevated transport costs. In January 2023, tax receipts from oil exports declined noticeably, indicating growing fiscal strain.

    According to Schott, these pressures have significantly restricted Russia’s access to key military components and advanced technologies. Russian manufacturers, including defense suppliers, have been forced to seek alternatives beyond traditional Western sources, turning to China and other non-Western markets. However, substitute goods are often costlier and of lower quality, complicating arms production, maintenance, and modernization. Replacing lost or worn-out military systems requires a steady flow of both standardized parts and high-grade technology, the flows that are now impaired. As a result, Russia’s ability to sustain large-scale conventional warfare will erode over time.

    The paper highlights that Russia’s trade has pivoted rapidly toward Asia, especially China, but with important constraints. Beijing has increased trade but has not fully replaced Western ties and remains cautious about triggering secondary sanctions. Some re-exports through Turkey and Central Asian states have grown, and Russia attempts to reroute military-linked imports through smaller regional hubs. Yet these channels offset only a fraction of the lost flows. Smuggling and indirect sourcing are limited, and Russian firms now face higher costs and complexity when rerouting or obscuring transactions. The defense sector remains vulnerable to persistent supply bottlenecks, particularly for sophisticated components.

    Western countries, especially in Europe, absorbed substantial economic costs in 2022, including spikes in energy prices. Yet Schott argues that political resolve has largely endured, supported by widespread outrage over Russian atrocities. Still, he warns that weakening coalition unity would undercut the sanctions’ long-term impact. He also notes that confiscating frozen Russian central bank assets could yield significant funding for Ukraine’s reconstruction, though legal debates continue.

    In the broader picture, sanctions have accelerated Russia’s economic drift toward autarky, weakened investor confidence, and exposed China and India to the risks of over-reliance on Russian commodities. Over time, Russia is likely to become more isolated, with diminished access to foreign capital, constrained technological imports, and an industrial brain drain. Schott stresses that continuing Western resolve, including support for Ukraine’s defense, is essential to ensuring that sanctions remain a durable constraint on Russia’s military and economic capabilities.

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  • Toughening Financial Sanctions on Russia

    Toughening Financial Sanctions on Russia

    Intereconomics, 2023

    The paper discusses Russia’s accumulation of foreign assets, referred to as “shadow reserves,” which have been built up despite sanctions. Favorable external dynamics have allowed Russia to accumulate substantial assets abroad, which need to be kept out of reach of the regime. The authors suggest that central banks and supervisory authorities should be tasked with identifying Russian foreign assets to ensure that these funds cannot be used to widen Russia’s monetary and fiscal policy space.

    To enhance the effectiveness of sanctions, the authors propose several measures:

    Addressing loopholes in the sanctions regime, including, possibly, through the strategic and limited use of secondary sanctions.

    Tasking central banks and supervisory authorities with the identification of Russian foreign assets to ensure that funds cannot be used to widen Russia’s monetary and fiscal policy space.

    Limiting channels for energy-related transactions to improve transparency.

    Strengthening documentation requirements for financial institutions within the price cap regime to allow for more effective implementation and enforcement.

    Punishing sanctions violators through their reliance on the international financial system.

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