The economic consequences of the Allied trade embargo against Russia have been profound. The study aims to examine these effects, modeling the potential impact of a full trade embargo imposed by a coalition of sanctioning states, including the EU, the US, the UK, Canada, Japan, and several others, on Russia, Belarus, and the global economy.
The findings indicate that Russia would bear the heaviest economic losses, with its real GDP projected to decline by up to 14.8% in the short-to-medium term. The most significant driver of this downturn would be the withdrawal of foreign direct investment (FDI) by Allied nations, which would severely limit Russia’s capacity for economic recovery. Additionally, Russia would experience a 50.7% contraction in imports and a 22.6% drop in exports. Belarus, though affected, would face a considerably smaller GDP decline of 1.23%.
For the sanctioning nations, the economic fallout is far less severe but unevenly distributed. European countries with stronger trade ties to Russia, such as Germany and the Netherlands, would see GDP losses exceeding 1%, while economies less dependent on Russian trade, like the US and Canada, would experience negligible effects. The overall GDP contraction for Allied economies is estimated at just 0.52%, reinforcing the asymmetry of the economic burden between Russia and its sanctioners.
Non-Allied economies, including China, India, and Turkey, would also feel the repercussions of the embargo, though to a lesser extent. Higher transaction costs in trade with Russia, coupled with shifts in global supply chains, would result in minor real GDP losses. However, the extent of their exposure depends on their level of engagement in trade and investment with Russia.
The study shows the effectiveness of a coordinated trade embargo as a tool of economic coercion. Russia’s reliance on international trade and foreign investment makes it particularly vulnerable, and while it has sought to insulate itself through alternative partnerships and policy adjustments, these measures have not been sufficient to counteract the full weight of the sanctions. Policymakers in sanctioning countries are advised to consider the strategic use of FDI restrictions, as they appear to exert the most substantial pressure on the Russian economy. Additionally, maintaining a careful balance between tightening restrictions and mitigating global economic challenges remains a critical challenge for the Allied coalition.
Read the full study.
