Effectiveness of sanctions: Who suffers the most — and why

"The economic consequences of sanctions depend on their intensity and the economic structure of the target country," says Moritz Schularick, president of the Kiel Institute and co-author of the research paper Economic Insecurity: Trade Dependencies and Their Weaponization in History. An analysis of global data since 1920 shows that trade sanctions cause only moderate damage on average: if trade amounting to 1 percent of GDP is sanctioned, real Gross Domestic Product (GDP) falls by only 0.3 percentage points on average over five years. 

“Only sanctions amounting to 10 percent of GDP cause serious economic damage,” explains Schularick, “which corresponds to about one-third of the foreign trade volume of an industrialized country.” In other words, only drastic measures lead to noticeable economic costs.  

Who is most at risk? 

The differences between countries are substantial. Economies with undiversified trade structures are significantly more vulnerable to sanctions, even minor ones, than highly diversified industrialized nations. This is especially true for island nations that rely heavily on imports and for low-income countries. For these countries, a sanction worth 1 percent of GDP can cost up to 5 percentage points of GDP — many times the average effect. However, there are notable exceptions among larger economies, such as Canada and Mexico. Due to their strong export dependence on the US market, they are particularly vulnerable to economic coercion, such as the import tariffs imposed by US President Donald Trump. 

Countries with a high proportion of commodities in their exports tend to react more sensitively: If hit by a 10-percentage-point increase in the share of commodity exports results in GDP losses that are three to four times higher than average. This is particularly true for Russia. “If export bans on oil and gas were enforced more consistently, sanctions would be much more effective. Currently, Western allies are falling short of their potential to exert economic pressure on Russia,” says Schularick. 

Financial sanctions: A strategic weakness for EU countries 

Financial sanctions can have even more severe effects and are becoming an increasingly important foreign policy tool. Measures such as freezing assets or excluding countries from payment systems like SWIFT can result in GDP losses of up to 10 percentage points. For instance, after US sanctions targeted Iranian financial institutions in 2012, the country’s economy shrank by approximately 20 percent over three years. 

Financial sanctions are especially effective against countries that are deeply integrated into global capital markets. This includes financial hubs such as Singapore, Switzerland, and the United Kingdom — but also several EU countries with large financial sectors, including Luxembourg, Ireland, the Netherlands, and Belgium. Their high dependence on international payment flows reveals a strategic weakness of the EU: the strong connection to US-led financial infrastructures poses a risk that should not be underestimated, according to the authors.  

“In a world of rising geopolitical tensions and the possibility of a new ‘Cold War,’ developing countries with undiversified export structures are particularly vulnerable to economic coercion,” Schularick warns. “But Europe has its weak spot, too.”