Over the coming few weeks, alongside the regular coverage of the Clark Center’s polls and other news, On Global Markets will be reporting on the discussions held at the Economic Experts Conference 9/10 October. Most of those sessions were held under the Chatham House Rule.
It has been three and a half years since Russia launched its full-scale invasion of Ukraine, which not only shook European – and global – geopolitics but also had major ramifications for the global economy.
As economists gathered at the Clark Center’s Economic Expert Conference in early October, the European Union was implementing its nineteenth package of sanctions on Russia, and discussions on plans to use the pool of frozen and seized Russian assets to directly support Ukraine’s war effort were ongoing. Meanwhile, in the background, technological competition – the so-called Chip War – between China and the United States was continuing.
The conference session on war and sanctions provided an excellent chance to take stock of what is known, what remains uncertain, and to assess how well the predictions of economists have played out over several years of conflict.
The session began with an important question: were economists too optimistic about the potential of economic sanctions to change the behaviour of states? Back in 2014, following the beginning of the first phase of the Russo-Ukrainian conflict and the annexation of Crimea, a plurality of respondents to the Clark Center’s polls believed that sanctions could indeed deter states from taking aggressive actions. What is more, in early 2022, following Russia’s full-scale invasion of Ukraine and the imposition of Western sanctions, a strong majority of those polled in both the US and European panels believed that Russia would face a deep financial crisis.
More than three years later, that forecast does not look especially accurate. Rather than a crisis or recession, Russia’s economy grew strongly for the first thirty or so months of the war and indeed experienced, by most measures, some version of overheating. Growth does seem to have slowed sharply in recent months, and some form of stagnation may be the outcome in 2026, but this is far from what was predicted back in 2022.
There are, as participants at the conference noted, understandable reasons for that. For a start, the sanctions implemented do not seem to have bitten quite as tightly as once assumed. European exports to Kazakhstan, Kyrgyzstan, and Armenia, for example, have all grown strongly, and so have the exports of those nations to Russia. This suggests that at least some trade is still finding its way to Moscow, even if it now takes a more circumventing route. The replacement rate is not one-for-one, but perhaps 20%. More generally, Russia has, in many cases, found replacement trading partners in the form of, in particular, China and Turkey.
It was noted that whilst 141 countries condemned Russia’s invasion at the United Nations, only 45 actually implemented sanctions. It was perhaps also unrealistic to expect sanctions to be as effective when so many countries did not take part.
Polls of both the European and US Expert Panels in June this year showed that the view had changed and become more pessimistic, with the majority of respondents now far less sure that sanctions could indeed change the behaviour of states.
Another reason given for the initial optimistic view of the effectiveness of sanctions proving to be confounded is related to timing. In particular, whilst the USA and UK imposed oil sanctions early, neither was an especially large consumer of Russian oil. Europe’s sanctions, on the other hand, were announced in May and June 2022 but did not come into effect until December 2022 to February 2023. Oil prices were high during the period of delay, and Russia earned a large trade surplus.
Still, some conference participants were keen to remind others that one should be comparing what happened not to an ideal scenario – in which sanctions did indeed ‘stop the war’ – but to a realistic counterfactual. And whilst the sanctions packages may not have stopped the war, they have almost certainly retarded Russia’s war effort.
While there has been the occasional scandal when, say, a component from Switzerland or Germany had been discovered in a Russian drone, in general, access to such cutting-edge Western technology has been lost, and the Russian war machine is far less well-oiled as a result.
Stepping back, President Putin has lost access to the frozen Russian overseas financial assets, and while the total size of these assets remains disputed, the $300B figure the Kremlin uses is credible. That is 15% of Russian GDP and money which could have been used to hire soldiers, purchase ammunition, and could have been a ‘game changer’ over the last three years.
Participants at the conference were also reminded that the spillovers and spillbacks from sanctions remain important. Attempts to get a G7 or G20 meeting, for example, to concentrate on the question of sanctions have often been sidelined over the last few years by pressing concerns about food and energy prices and the domestic political problems they cause.
Broadening the discussion on sanctions out from the Russo-Ukrainian war to wider economic statecraft, there was a fruit debate on the wider question of how effective import controls are, an especially policy-relevant question given US controls on the export of semiconductors to China.
As one participant was keen to argue, working out how big or small a deal export or import restrictions actually are is a familiar question to trade economists. Much depends on how large a share of expenditure such items are and the availability of substitutes. The key point is that impacts can be very non-linear.
This provoked an interesting debate on the choke points. Since the pandemic, there has been more popular discussion of potential choke points in the global economy and of strategic goods – such as chips and rare earth minerals. It sometimes feels, noted one participant, that the debate has oscillated a bit too wildly. From a near total lack of concern with concepts such as the resilience of supply chains to sudden fears that choke points are widespread in the global trading system.
This, it was argued, is an important area for future research. One where a better understanding of the theory of choke points and how to spot them would aid in policy setting. Given the non-linearities implicit in these questions, it could be the case, for example, that relatively small diversifications in supply provide a great deal of insulation from potential shocks.
The general view of participants was that, while there may have been too much optimism on the potential power of sanctions three years ago, they remain an effective tool of policy and one worthy of much more research.
