The Empirical Evidence of EU-Russia Bilateral Trade Under Sanctions and Oil Price Shocks

Abstract

After the annexation of Crimea in 2014, many EU–Russia projects such as the concept of Strategic Partnerships, negotiations on the New Basic Agreement, and the abolishment of visa regime, among other important issues, were suspended. On top of that, the parties involved imposed mutual sanctions which seriously damaged bilateral trade relationships. The present article aims to analyse EU–Russia bilateral trade under the sanctions and low oil prices together with such factors as the growth of Russian and the EU’s GDPs per capita, geographical distance between parties and devaluation of Russian currency by applying a gravity model. Moreover, the model allows us to carry out simulations of circumstances as they would likely have unfolded had the sanctions not been imposed and if oil prices had remained at a reasonable level.