Does uncertainty created by the risk of sanctions affect trade above and beyond the sanctions actually imposed? While most restrictions on Russian imports were introduced immediately after the February 2022 invasion of Ukraine, the sanctioning countries simultaneously pledged further escalation unless the conflict ended. In line with this threat, we estimate that the subsequent escalations were largely anticipated in advance, with trade flows declining many months before they actually became subject to sanctions. Crucially, this effect was not limited just to sanctioned trade flows: we also estimate a decline for a wide range of never-sanctioned trade flows that nonetheless could have been perceived as being at risk of future sanctions. Overall, our results imply that Russia lost the equivalent of about a month and a half of imports over 2022-23 due to the escalation of sanctions after April 2022, with two-thirds of this loss driven by reductions in never-sanctioned trade flows that were only at risk of sanctions.
SAFE Working Paper No. 491
