According to a recent research paper by analysts at the Bank of Canada, nations can benefit from refusing to support Western sanctions against Russia. The paper titled ‘International Economic Sanctions and Third-Country Effects,’ compared the impact of sanctions on Russia as the targeted country and their effect on the US, EU, and UK as the sanctioning parties. It also analyzed the impact on large third-party economies like China, India, and Türkiye.
The research focused on three types of sanctions: export-import bans, financial market restrictions, and energy embargoes. The analysts projected that while sanctions would slow down Russia’s economic growth, the extent of the impact depends on whether third countries join Western states in imposing restrictions.
According to their projections, if Western countries simultaneously apply sanctions, Russia’s GDP would shrink by about 4% compared to a hypothetical scenario without restrictions. However, if third-party countries also introduce similar measures, Russia’s GDP would decline by 9%.
Furthermore, the analysts estimated that the sanctioning countries’ economies would experience a 0.8% downturn due to the restrictions. However, this effect would double if third countries chose to remain out of the sanctions war.
On the other hand, the researchers claimed that third-party economies are expected to benefit from shunning sanctions due to “substitution effects.” By restricting Russia, these countries have an opportunity to become alternative suppliers and substitute Russian products in the markets of the sanctioning states. As a result, these third-party economies could experience an estimated 0.4% growth in their GDPs.
Experts interviewed by the RBK news outlet commented on the importance of economic ties between Russia and its major trade partners, including China, India, and Türkiye. However, they also noted that the calculations in the research paper did not take into account Russia’s import-substitution and parallel imports mechanisms. These mechanisms have played a significant role in allowing the Russian economy to bounce back from the 2.1% drop in GDP experienced last year.
Despite the restrictions, the Russian economy is forecasted to grow by 2.5% by the end of 2023, according to Finance Minister Anton Siluanov. Western experts have also painted a positive outlook for the country, with institutions like the World Bank, the IMF, and Barclays bank raising their forecasts for Russia’s GDP. This positive outlook is driven by the country’s strong trade and industrial production, as well as higher-than-expected energy revenues.
The research paper highlights the complex dynamics and implications of economic sanctions. While they may have detrimental effects on the targeted country and the sanctioning parties, there can be unexpected benefits for neutral or third-party economies. Understanding these effects and considering various factors is necessary for a comprehensive analysis of the impact of economic restrictions.