Recent debates suggest that Russia has managed to sustain economic growth and resist Western sanctions by shielding critical sectors and circumventing restrictions. This paper analyzes firm-level impacts of the 2014 sanctions episode to show that even when some firms are protected, sanctions impose significant economic costs. Using matched firm-level and individual data, we estimate the effect of U.S. and EU “smart sanctions” on Russian firms, showing large and persistent losses in operating revenue, asset values, and employment among targeted companies—especially in sectors reliant on Western service inputs. Crucially, firms designated as “strategic” by the Russian government were largely insulated from these effects, revealing a selective shielding mechanism. While effective in protecting politically prioritized sectors, shielding shifts the economic burden onto the rest of the economy. This trade-off implies that sanctions can still bind—even when headline indicators suggest resilience—because non-prioritized sectors are left to absorb the cost. The findings challenge narratives of full sanctions circumvention and underscore the long-term distortions and hidden fiscal pressures that selective shielding creates for the sanctioned regime.
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