By definition, trade restrictions are welfare-reducing, as they limit the efficiency gains from specialization and exchange. In an extreme scenario, the world could fragment into distinct geopolitical blocs with minimal cross-border trade—reminiscent of the Cold War. This hypothetical scenario was explored in the 2023 IMF World Economic Outlook (WEO), which simulated global trade decoupling based on UN General Assembly (UNGA) voting patterns on the war in Ukraine.
The simulations suggest that while the global welfare losses under such fragmentation would be non-negligible, they would remain relatively modest in aggregate. Importantly, the Russia–China and aligned bloc would suffer more severe losses than the Western bloc. However, the analysis also highlights two significant caveats:
- Low-Income Countries (LICs) would bear disproportionately higher costs, due to their more limited diversification and trade resilience.
- The green transition could be delayed, given its reliance on globally integrated supply chains and access to critical materials and technologies.
Despite these simulations, implementing truly impermeable trading blocs is impractical in reality. Global supply chains are deeply interconnected, and leakages, arbitrage, and circumvention through third countries would significantly undermine the effectiveness of any such split.
Several studies have shown how alternative trade routes and partners are strengthening Russia’s economic ties in Eurasia. Initiatives from several western countries, including the Swedish Chamber of Commerce, have promoted business in CIS countries, offering tax incentives, reduced licensing requirements, and access to regional markets—all of which create attractive conditions but come with sanctions compliance risks. Many of these countries have increased their exports to Russia substantially during this time framework. Meanwhile, Russia’s exports to these countries have also surged, leading to a situation where trade with CIS countries now contributes roughly 7% to Russia’s GDP. These dynamics illustrate how re-export schemes and regional trade realignments can dilute the intended impact of sanctions.
The private sector faces unprecedented challenges in navigating the evolving sanctions landscape. Companies must contend with rapidly changing regulations, the need for expertise in legal and regulatory risk, and the development of robust internal compliance programs. To address these challenges, public–private cooperation is essential. Direct channels between businesses and regulators, along with clear guidance and coordination, can help identify evasion tactics, improve enforcement, and support firms in maintaining compliance while operating in high-risk environments.
At the same time, many companies have taken independent action beyond formal sanctions. Hundreds of global companies have exited or are in the process of leaving the country, either by selling off or liquidating their operations. Nevertheless, 58% of international companies active in Russia in early 2022 continue operations in the country. This limited progress, years after the full-scale invasion and more than a decade since Russia’s aggression began, underscores a significant gap between stated intentions and concrete actions. It also reinforces the need for stronger coordination, clearer standards, and greater accountability in both public and private sector response.
Explore more studies and research papers on the trade restrictions in the “Evidence Base” section.
