Impact assessment of energy sanctions in geo-conflict: Russian–Ukrainian war

Abstract

Since the geopolitical conflict between Russia and Ukraine, Western countries led by the United States and the European Union have launched several energy sanctions against Russia. How will sanctions and countersanctions on energy trade affect the EU-Russia and the world’s energy trade pattern? This paper sets six energy trade scenarios based on the degree of energy sanctions and counter-sanction measures imposed by the EU and Russia. We use the global multi-region comparative static CGE model to simulate the changes in macroeconomic indicators in major countries worldwide. The diversion effect of energy trade and the impact on the national economy caused by geographical risks quantitatively analyzes. The results show: (1) Energy sanctions will cause economic damage to both sides, in the worst-case scenario, the EU economic loss reaches 1.488%, the Russian loss reaches 4.8%, and worldwide inflation will rise; (2) Russia’s counter-sanctions will have a direct economic impact on the EU, but will not improve its economic situation; (3) Energy sanctions will bring about a direct energy trade transfer effect, the EU’s energy imports will be diverted to non-Russian markets, and Russian energy exports will also shift to Asian markets, and energy trade between the two economies will be significantly reduced; (4) Energy supply will have a profound impact on the world’s economy and society, leading to social instability and a decline in total output of 2.895%. Energy games will have a negative impact on the world’s carbon emission reduction and energy consumption structure transformation. Through quantitative analysis of the impact of energy sanctions on the world economy and society, the energy game caused by the geopolitical crisis will harm both parties involved in the game and the world economy. The world pattern will return from the development pattern of cooperative division of labor to a situation of conflict and confrontation, which is not conducive to the transformation of energy trade and consumption structure under market rules.