New Study Reveals the Costs of Sanctions

These figures are partly even more drastic if the current scenario is compared with the case in which the sanctions apply to all goods, i.e. there are no more exceptions. In this case, the current coalition only achieves 47 per cent of the possible decline in GDP for Iran. And 16 per cent for Russia.

High Costs for Some Stakeholders
When sanctions are imposed, it is not only the sanctioned countries that suffer - the study also shows this. However, there are major differences: “While larger economies such as the USA, Japan and Germany get off relatively lightly, smaller countries such as Malta, Estonia and Latvia suffer relatively drastic consequences,” explains Wanner. This should come as no surprise: if a small country like Latvia restricts trade with its large neighbor Russia, this will inevitably have a greater impact than in the USA or Canada.

As a consequence, this means that Small countries pay a high price in this case, while the effects of their participation in the sanctions are only reflected in a small loss of welfare for Russia. The study also shows how things could be better: “Instead of the small countries, other states would have to join the coalition. Then the sanctions would have much greater consequences,” explains Wanner.

In the case of sanctions against Russia, the economists have calculated that the participation of China, Vietnam, Belarus, Turkey and South Korea in particular would drastically increase the potential for sanctions. This would rise from 58 per cent under the current coalition to 71 per cent - simply by China joining the sanctions coalition.

Transfer Payments for Particularly Affected Countries
Of course, it is unlikely that China will join a coalition of Western states against Russia. So what could the coalition do to ensure that as many countries as possible side with it without suffering disproportionately large economic damage? “Financial transfers” is the research team’s answer.

“Our results show that 591 million US dollars would have to be mobilized in connection with the sanctions against Iran and 4.8 billion US dollars in the case of Russia so that the members could compensate for their welfare losses due to the respective sanctions,” the study states.

The largest contributor to this “compensation fund” would be the USA, whose combined transfers for both sanctions packages would amount to around 4.4 billion US dollars. They would be followed by the UK (770 million US dollars) and Canada (553 million US dollars).

Gunnar Bartsch is Deputy Director and Press Officer / Editor, Press and Public Relations Office, University of Würzburg. The article was originally posted to the website of the University of Würzburg.