Sanctioning Russia: A Forecasting Model of Economic Effects Under Alternative Oil Price Scenarios

Abstract

In 2014, Russia annexed the Crimean Peninsula and interfered in the Eastern Ukraine. Western nations were outraged and levied sanctions in response. This paper estimates the impact of Western sanctions on Russia’s economy under various oil price scenarios. Using VAR techniques, I develop forecasting models for Russia’s ruble and its macroeconomy through Q3 2019. Forecast results demonstrate the ruble’s dependence on oil prices but indicate that sanctions against Russia weaken the ruble. Moreover, sanctions negatively impact Russia’s macroeconomy. Their removal affects whether Russian GDP returns to positive trend growth or remains in stagnation.