Possible Russian Invasion of Ukraine, Scenarios for Sanctions, and Likely Economic Impact on Russia, Ukraine, and the EU

Vasily Astrov, Richard Grieveson, Artem Kochnev, Michael Landesmann and Olga Pindyuk

No 55, wiiw Policy Notes from The Vienna Institute for International Economic Studies, wiiw

Abstract: While the outcome of the current Ukraine crisis is highly uncertain, it seems likely that the West will impose sanctions on Russia. Applying a stylized VARX model on Russian quarterly time series, we find no statistically significant impact of sanctions on either Russian GDP or the FX rate. However, we find that Russia is extremely vulnerable to a reduction in the price or volume of its energy exports. Aside from energy, the most painful sanctions would include cutting Russian banks off from the SWIFT system and dollar markets, and bans on exports of high-tech goods to Russia. While Russia has become increasingly insulated from the dollar-based global system, and has built up substantial buffers which it can deploy in the case of sanctions, under an adverse scenario the state would have to make large-scale interventions to maintain economic and financial stability. The Ukrainian economy will also suffer, and will require major Western support to maintain macro-financial stability. Over the medium run, the current crisis will further isolate Russia economically, leading to a continuation of its very mediocre growth performance since 2014.

Keywords: Ukraine; Russia; EU; US; sanctions; energy; CEE (search for similar items in EconPapers)
JEL-codes: E31 F51 (search for similar items in EconPapers)
Pages: 26 pages including 3 Tables and 11 Figures
Date: 2022-02
New Economics Papers: this item is included in nep-his and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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