The undoing of economic sanctions: Evidence from the Russia–Ukraine conflict

Abstract

We examine the effects of Ukraine’s economic blockade of the anthracite-rich Donbas region, to demonstrate how trade sanctions’ efficacy can be undermined by trade through non-participatory nations. We document that after the blockade was imposed in March 2017, Russia reported a sharp increase in anthracite imports from Ukraine, while Ukraine reported no exports to Russia at all. We interpret this gap in “mirror statistics” as reflecting a shift in Donbas trade through Russia. Concurrently, Ukraine’s anthracite imports from Russia increased sharply (from near-zero), indicating that some of the increased supply of anthracite in Russia was exported back to Ukraine. We provide suggestive evidence that Russian traders benefited from monopsony rents, buying low-priced anthracite from Donbas while Russia sold anthracite to Ukraine at prices comparable to other export markets. Overall, our findings highlight some of the economic and geographic features that may raise the cost and limit the efficacy of sanctions.