Institute simulates embargo
What sanctions would bring Russia to its knees
02/23/2022 1:46 p.m
The EU, the US and other Western countries have so far imposed targeted sanctions primarily on Russian banks and individuals close to Putin. To hit Russia’s economy hard, other measures would be needed. Calculations by the Institute for the World Economy show what these are.
By stopping gas imports from Russia, the West could plunge the country into a severe economic crisis, while the damage to Germany and the EU would be comparatively minor. An embargo on trade in machines or vehicles would also hit Russia painfully, albeit much less severely. That is the result of example calculations by the Kiel Institute for the World Economy (IfW), which show which trade sanctions in the Ukraine conflict would have the greatest effect on the Russian economy.
A complete stop of all imports and exports for the respective product group by the USA, the EU, Great Britain and their western allies was simulated using a trade model. Accordingly, an embargo on gas would have by far the most serious consequences. Russia’s gross domestic product (GDP) would collapse by 2.9 percent. Germany’s GDP, on the other hand, would even increase slightly by 0.1 percent, and the EU’s GDP would also increase minimally. Whether the trading freeze for the gas would be imposed by Russia or the West is irrelevant to the economic result.
According to the calculations, the reason for the plus for Germany’s economy is that the western allies would replace the missing imports from Russia with products from the alliance partners and Germany is particularly competitive here. In the event of a gas embargo, Germany would have a cost advantage in the energy-intensive production and processing of metals, for example, because its energy mix consists of only a relatively small proportion of Russian gas.
Raw material export continues for the time being
An oil trade embargo would result in a 1.2 percent decline in economic output in Russia and 0.1 percent in Germany and the EU. An embargo on machines and machine parts would shrink Russia’s economy by 0.5 percent, an embargo on vehicles and vehicle parts by 0.3 percent. For Germany and the EU, both measures would only have minimal negative effects.
“Our calculations are of an exemplary nature, but they clearly show that the medium-term economic consequences of trade embargoes would hit Russia much harder than its western allies,” said IfW economist and trade expert Hendrik Mahlkow. Russia’s threat to turn off the gas tap in Europe is therefore “little credible”.
So far, the EU, the USA and Great Britain, among others, have imposed various sanctions against individuals on Russian banks, business people and decision-makers associated with President Vladimir Putin, and have restricted the Russian government’s access to the international financial market. Germany has also put the certification of the controversial Nord Stream 2 gas pipeline on hold. Further penalties could follow. Trade embargoes for certain product groups have not yet been used in the current conflict. Russian exports of oil and gas as well as other raw materials such as aluminum, coal, nickel and gold, amounting to several hundred million euros a day, have so far continued unhindered.