The Economic Consequences of Sanctions against Russia after the Invasion of Russia in the Crimea

Abstract

The US and EU have imposed economic sanctions on Russia over its annexation of Crimea from Ukraine. Russia's economy has been severely impacted not only by sanctions, which have isolated it from international business and trade, but from the falling oil price which has plummeted around 60 percent since June 2014, hurting its exports and revenues. As a consequence, Russia is expected to enter recession in 2015. The estimated impact of Russia?s ban on agro-food imports from the EU imposed in August 2014 is expected to be the highest in the Baltic's. These losses are undoubtedly painful, yet manageable (a trade decline bigger than 10% would obviously lead to greater losses). Economic conditions in Russia have deteriorated at a faster rate in recent months. Capital flight from Russia has accelerated, the ruble has depreciated by more than 50%, inflation has increased, and the Russian economy is projected to contract by 3.0% in 2015. The question is whether these losses are justifiable and will achieve the desired effects ? to change Russia?s behavior in Ukraine, European Union, US, Turkey and beyond.