International sanctions imposed on Russia are expected to lead to a double-digit contraction in the Russian economy, according to a new Policy Brief from the Complexity Science Hub Vienna (CSH). Considering that China and India follow the current sanctions imposed by Western countries, the Russian economy would shrink by 17%. With a global embargo on Russian oil and gas, the country’s economy would contract another 12.4%.

“We use a combination of economic models that allow us to estimate supply and demand shocks for many economies simultaneously,” said lead author of the policy brief Stefan Thurner. “Our extension to classic input-output analyzes shows shock waves that started in one place and travel through global economies and give us a sense of their strength in a global context,” says the CSH president.

The methods take into account economic networks, allowing scientists not only to estimate the large-scale direct effects of sanctions imposed on Russia and the countries imposing sanctions, but also to estimate the indirect results of an economic shock.

Two scenarios

The CSH team analyzed two scenarios. The first models the effects of the current set of economic sanctions imposed on Russia by Western countries. The second scenario simulates the effects of a hypothetical global embargo on Russian oil and gas. The scientists used data from 66 countries and 45 industries provided by the Organization for Economic Co-operation and Development (OECD).

In the first scenario, the simulations indicate an expected contraction of the Russian economy by 6%. If India and China follow the sanctions, the drop is 17%. The industrial sectors most affected in Russia are motor vehicles (–52%), electrical equipment (–39%) and machinery (–36%), followed by the manufacture of other transport equipment (–34% ) and computing, electronics and optics. equipment (–33%).

In contrast, the demand shock effects for European countries due to the absence of Russian exports are marginal and are often below the percentage range, says Tobias Reisch, the first author of the policy brief. “However, there will be supply chain disruptions that we cannot currently model and which could cause much more severe damage,” he adds.

A global ban?

Simulating the short to medium term effects of a hypothetical global embargo on Russian oil and gas, the modeling predicts an additional 12% contraction in the Russian economy. Assuming international fuel demand remains constant and met by other countries, the global ban on Russian fossil fuel exports would benefit Saudi Arabia, Norway, the United States and Australia. The mining and oil and gas extraction sectors in Saudi Arabia could grow by 6.9%, the same sectors in the United States and China by 6.7% and 6.4% , respectively, according to this document.

The CSH team has also created an interactive visualization tool that allows users to explore the effects of economic shocks in different countries and on various economic sectors. Users can even impose their own penalties and watch how they play out.