The impact of sanctions on financial markets in the wake of the Russia-Ukraine conflict has been a subject of intense scrutiny. This study examines how different forms of economic restrictions and financial aid measures influenced stock prices and currency values, not only in Russia and Ukraine but across global markets. While sanctions aimed to weaken Russia’s economic standing, their effects have spread across industries and countries in sometimes unpredictable ways.
The study finds that financial markets responded unevenly to sanctions. Among the most significant impacts were financial restrictions from G7 nations, which directly affected Russian stock prices and triggered a decline in the ruble. Travel bans imposed by the same coalition had a noticeable negative effect on global stock prices. At the same time, import sanctions had the opposite effect, briefly driving stock market gains in G7 countries. This could be attributed to expectations of increased domestic production as substitutes for Russian imports. Meanwhile, financial aid to Ukraine had little effect on the stock markets of donor countries, indicating that investors had already factored in such assistance or saw it as insufficient to sway economic conditions.
For Russia, the consequences of sanctions were far-reaching. Restrictions on financial transactions and trade caused notable declines in stock prices, particularly when imposed by major global financial players. Financial-transaction and import-trade sanctions generated the sharpest declines in Russian share prices, especially when imposed by G7 or other developed economies, and both financial and travel sanctions produced marked depreciations of the ruble. Export sanctions produced a counter-intuitive result: both foreign export restrictions on Russia and Moscow’s own export bans were followed by small but statistically significant increases in Russian share prices, which might be the evidence that firms could reap short-run gains from import-substitution and redirected trade flows.
The study also highlights an often-overlooked consequence of financial restrictions: their impact on Ukraine. While sanctions were designed to weaken Russia’s economic position, they also contributed to instability in Ukraine’s financial markets. Ukrainian stocks experienced downturns following the imposition of financial and travel sanctions on Russia, possibly due to concerns over economic escalation and prolonged conflict. However, the hryvnia showed some resilience, strengthening slightly in response to financial sanctions on Russia, as markets saw these measures as beneficial in limiting Russia’s economic leverage.
The findings underscore the complexity of using economic tools as instruments of policy. However, since financial sanctions inflict substantial costs on Russia yet seem to leave donor-country markets largely unscathed, the authors recommend making them the central instrument in any coordinated sanction package going forward.
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