To Comply or Not to Comply: Understanding Neutral Country Supply Chain Responses to Russian Sanctions

Abstract

Using transaction-level trade data from major non-sanctioning countries, we study how firms responded to export sanctions against Russia since 2022. Firms headquartered in sanctioning countries reduced their sanctioned exports, highlighting  multinationals' geopolitical influence. However, domestically headquartered firms increased their sanctioned exports. Domestic firms with higher exports to sanctioning countries showed better compliance, underscoring the importance of limiting violators' market access. In contrast, firms sourcing more inputs from sanctioning countries rerouted sanctioned products to Russia. Sanctioning multinationals expanded exports to both sanctioning and Russia-friendly countries, blending compliance and evasion. These findings suggest stronger secondary sanctions and multinational involvement are essential.

Keywords: Global Supply Chains, Geopolitical Risk, International Conflict

JEL Classification: F14, F63, O19