Bank of Canada Analysts Suggest Benefits in Rejecting Western Sanctions Against Russia
In a recent research paper titled “International Economic Sanctions and Third-Country Effects,” analysts at the Bank of Canada have argued that nations could reap economic benefits by refusing to support Western sanctions imposed on Russia. The research, released last week, delves into the intricate dynamics of sanctions and their impact on various countries.
The paper focuses on the effects of sanctions on Russia as the targeted nation and explores the consequences for the United States, European Union, and the United Kingdom as the sanctioning parties, as well as for large third-party economies such as China, India, and Türkiye.
The research takes into account three primary types of sanctions: export-import bans, financial market restrictions, and energy embargoes. According to the analysts’ projections, the impact of sanctions on Russia hinges on whether third countries join Western nations in imposing these restrictions.
In scenarios where Western sanctions are simultaneously applied, the analysts estimate that Russia’s GDP would contract by approximately 4%, compared to a hypothetical situation without any restrictions. However, they argue that if third-party countries were to introduce similar measures, Russia’s GDP could decline by as much as 9%.
Furthermore, the research suggests that the economies of the sanctioning countries (US, EU, and UK) would experience a 0.8% downturn due to the sanctions. However, this negative effect could double if third countries abstained from participating in the sanctions.
The analysts propose that third-party economies stand to gain from abstaining from sanctions due to what they term “substitution effects.” By refusing to sanction Russia, these economies could position themselves as alternative suppliers and fill the void left by Russian products in the markets of the sanctioning states. This, they contend, would potentially result in an estimated 0.4% growth in the GDP of these third-party countries.
