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Trade remains a fundamental component of a country’s economic activities, even amidst the turmoil of war. This paper examines the impact of conflict on trade, particularly focusing on the dynamics between former trading partners who become belligerents. This research applies four International Relations frameworks—Relative Gain, Third Party Consideration, Domestic Political Economy, and Types of Traded Products—to analyze the economic interactions between Russia and European countries during the Russia-Ukraine War that began in 2022. The war has not only altered the geopolitical landscape but also disrupted global trade networks, compelling countries to navigate a new international situation. The study finds that the Relative Gains framework most effectively explains the behavior of Russia and the EU, though it highlights the need for more precise criteria within this framework to predict trade disruptions. The paper also discusses the limitations of the other frameworks and suggests that future research should focus on developing quantifiable measures to better understand and predict economic relations during wartime.

Introduction

Trade is an integral part of a country’s economic activities, even under the shadow of war. But how does conflict affect trade, especially when the belligerents were trading partners before the war? And even if trade continues, which products will continue to be traded, and which ones will not?

In this paper, I analyze trade between belligerents in wartime and apply existing frameworks from the International Relations field to Russia-Ukraine War that began in 2022. The conflict has not only reshaped the geopolitical landscape but also disrupted global trade networks, forcing countries to cope with a new international situation. During the war, European countries aimed to stop the war and hold Russia accountable for its actions, yet they continue to engage in trade with Russia for goods that are critical to their economies.

This paper applies four International Relations frameworks—Relative Gain, Third Party Consideration, Domestic Political Economy, and Types of Traded Products—to the current status of economic relations between Russia and Europe to determine which framework best explains the actions taken by European governments against Russia. This approach will provide a better understanding of how political blocs and their adversaries interact economically and politically during times of conflict.

Literature Review

The relationship between trade and conflict—that is, the economic effects of war—has been the subject of study in the International Relations discipline since at least the First World War era. However, the question of how trade between belligerents during conflict is affected by war is less researched.

Liberal scholars discuss how trade has a pacifying effect by decreasing the chances that countries will go to war. For example, Polachek (1980) found that countries with the highest levels of trade have the lowest level of mutual hostility Polachek and Xiang (2008) further argue that opportunity costs from economic interdependence for trade decreases the probability of war. Hegreet al. (2010) argue that trade promotes peace between states. Although this literature focuses on the effects of trade on conflicts initiation, this body of work implies that trade will be significantly affected and cut due to conflicts because once the decision has been made to go to war, the restraining effects of trade will no longer hold.

Beyond conflict initiation, scholars have also examined how the conflict processes will be affected by trade. For example, Crescenzi (2003) finds that while strong economic interdependence can reduce the severity of conflicts by encouraging negotiation, trade may also lead to more minor disputes, as countries use economic threats to push their demands. Other research argues that war will lead to a significant decrease in trade. For instance, Glick and Taylor (2010) argue that wars reduce or terminate trade and that war has large negative economic impacts that last for a long period of time.

Scholars examining trade in wartime have found that trade between belligerents—even those engaged in total war—does not completely cease. Levy and Barbieri (2004) discussed and applied multiple frameworks to analyze the trade between enemies during war. They applied these frameworks to analyze the trade during the Crimean War (1854–1856) between belligerent states.

Despite the contributions this research has made, the insights of this literature have yet to be applied to the ongoing conflict between Russia and Ukraine; in addition, the frameworks usually consider individual countries rather than blocs of countries. In some cases, such as the EU, a bloc functions similarly to an individual state. Although blocs consist of multiple countries and exhibit a less centralized power structure than a state, both blocs and individual states require coordination to achieve their objectives. Blocs respond to collective interests in much the same way that states respond to their own national interests, especially when those blocs are highly integrated, as the EU is.

With high collective interests, when a bloc of states engages in warfare, states within that bloc will respond in a manner that aims to maximize the benefits for their own bloc and minimize the advantages for the opposing side. Therefore, it is reasonable to apply the same behavioral dynamics observed at the country level to the multi-country level.

Theories of Trade in Wartime

Previous literature and work from scholars of International Relations have developed frameworks for understanding the trading relationships between states in wartime. This section introduces a number of those frameworks and then applies them to the Russia-Ukraine War in 2022 in the section that follows.

Relative Gains

One of the most prominent frameworks in International Relations that explains trade between belligerents in wartime is the Relative Gain theory, which is based on a realist perspective. Relative Gain theory states that countries focus on their relative power compared to opposing states. Morrow argues that states rarely cut off trade during peacetime because most goods have little military significance. However, if the benefits of trade become significantly imbalanced, states are more likely to sever trade relations during wartime (Morrow, 1997, pp. 12–37).

Although Morrow discusses Relative Gain theory primarily in the context of peacetime, his argument implies that more trade will be cut off during wartime, especially if the conflict is large in scale. This is because, in a larger war, a greater proportion of goods are likely to be diverted to the military, thereby increasing the strategic importance of those goods. As a result, states will be more inclined to restrict trade with their adversaries to prevent the latter from gaining any advantage that could be used in the conflict.

Liberman argues that relative gains matter more in a bipolar system while states are less sensitive in a multipolar system. Multipolarity reduces relative gains sensitivity by introducing collective action problems, meaning that states can cooperate by forming allies to reduce the burden and costs when dealing with adversaries (Liberman, 1996, pp. 153). Powell argues that states are concerned with relative gains when the use of force against them by the country with which they’re trading is a possibility (Powell, 1991, pp. 1303–1320).

Overall, Relative Gain theory states that states prioritize their relative power, cutting off trade when benefits become imbalanced, especially during wartime. Relative gains are more significant in bipolar systems, and states are concerned with relative gains primarily when the use of force is possible.

Third Party Consideration

Levy and Barbieri proposed the Third-Party Consideration framework to explain the trading relationship between belligerents during wartime. They state that countries might still maintain trade with their enemies during war because the former fear the potential loss of trade to a third party, especially when the state they are at war with is not its biggest threat. There are also diplomatic concerns: a decrease in trade with the enemy might cause more trade between the enemy and the neutral third countries, bringing neutral countries on the side of the enemy. Another concern is that stopping trade might result in a rise in global prices, which would result in a third-party intervention. For all these reasons above, countries might still maintain a certain level of trade with their enemies during wartime, especially under the condition that the war does not result in a huge existential threat (Levy & Barbieri, 2004, pp. 14–17).

Domestic Political Economy

Levy and Barbieri also proposed that another reason states will trade with enemies during wartime is due to concerns over domestic political economy. According to this explanation, a government tolerates or encourages trade because of concerns about domestic stability and the economy. The logic of this explanation is that a decrease in trade will lead to economic recession and a decrease in tax and revenue for the government. Another concern is related to the political support: a government might have concern over the political support, so it will attempt to stabilize the economy by continuing trade with a hostile power (Levy & Barbieri, 2004, pp. 19–27).

Types of Traded Products

Grinberg developed a theory that explains what type of products are traded between enemy states under different conditions, stages, and situations of wartime. Grinberg states that every product takes time for it to be converted to military use and each product has a different security externality, based on product level characteristics and war level characteristics. On the product side, Grinberg states the longer time it takes for a product to be converted to support a war effort, the more likely it will be traded. If a product has fewer substitutes and can generate more state income, it will be more likely to be traded (Grinberg, 2021, pp. 22–23).

The nature and length of a war significantly influences a state’s economic policy during conflict and the more existentially threatening a war, the more likely a state will halt trade and concentrate on immediate survival and military needs. As a war drags on, products that require more time to be converted for military use can create high security externalities for the opposing side, as states will have the opportunity to repurpose these goods for military applications. Consequently, the longer the war lasts, or the longer states perceive the war will last, the more stringent the trade restrictions on such products will become (Grinberg, 2021, pp. 23–27).

Russia-Ukraine War

This section will introduce and discuss the trading relationship between Russia and the EU from the 1990s to 2024. The section highlights the interdependencies between Russia and the EU and discusses the changes to that relationship resulting from the Russia-Ukraine War that began in 2022 and is ongoing as of 2024.

Interdependencies

Prior to the Russia-Ukraine War, Russia and Europe had a robust trading relationship. The foundation of EU and Russia’s trading relationship goes back to the Partnership and Cooperation Agreement, signed between Russia and the EU in 1994, which created the basis of trade relations between the EU and Russia in the post-Cold War era (PAC, 1994).

Prior to the Russia-Ukraine War, the EU was Russia’s largest trading partner and the destination of most of its exports. Russia was the EU’s fifth largest trading partner, accounting for 5.8% of the total trade, while the EU was Russia’s largest trading partner, accounting for 37.3% of the total trade. In 2019, the EU was also the largest investor in Russia (European Commission Trade Department, n.d.).

Besides the large quantity of trade, the EU and Russia also had strong economic interdependencies. Russia was heavily dependent on EU imports, and the EU heavily rely on Russia’s exports, particularly on products like natural gas and oil. The EU’s reliance on Russia for energy is significant. In 2013, Russia supplied 39% of the EU’s natural gas imports. Additionally, the EU imported over €300 billion worth of crude oil and oil products, with one third coming from Russia (The UK Parliament).

Much of the natural gas that Russia supplies Europe is transported through pipeline systems that were created during the Soviet Union (USSR) era. The USSR and its socialist bloc allies made a decision by the Council for Mutual Economic Assistance in Prague in 1958 to construct a crude oil pipeline system. Construction began in 1960, with each country responsible for their respective sections, making the pipeline the property of each country. Druzhba Pipeline, for example, was the largest pipeline created. The pipeline involved moving over 15 million cubic meters of earth and laying down 730,000 tons of pipe. It crossed 45 major rivers on its way to Central Europe, was fully operational by October 1964, and was in use by Russia until 2023 (IAOT, n.d.). This explains why many Central and Eastern European countries rely entirely on natural gas imports from Russia. For instance, six Eastern Europe EU member states—Bulgaria, Estonia, Finland, Slovakia, Latvia, and Lithuania—rely entirely on Russia for their gas imports (The UK Parliament, 2015).

Many European countries and the European Commission have long believed that Europe was too dependent on Russian natural gas, which posed significant security risks (Ratneret al., 2020, pp. 12). Over the past two decades, Russia has indeed used natural gas as a tool to gain leverage over European countries on multiple occasions. For example, Russia cut off gas supply in the winter of 2006, because of a failed negotiation about transit terms with Ukraine, affecting many European countries (Kramer, 2006). In 2009, the same situation occurred yet again (Reuters, 2009). For the EU, these disruptions exposed the risks associated with Europe’s reliance on Russian gas and emphasized the importance of diversifying energy sources and supply routes.

Oil and energy trade with Europe is extremely important for Russia. Russia’s government is highly dependent on oil and natural gas revenues, which accounted for 45% of the country’s federal budget in 2021 (IEA, 2022). The energy sector in Russia also holds important social responsibilities, such as providing fuel to economically disadvantaged regions and non-paying customers, as well as supporting single-industry towns (Mironova, 2024).

War Breaks Out and Sanctions

The war between Russia and Ukraine in 2022 can be attributed to a combination of geopolitical tensions, historical and cultural ties, and ongoing regional conflicts. Russia has long viewed NATO’s eastward expansion as a direct threat to its national security, and Ukraine’s increasing inclination towards Western alliances and its aspirations to join NATO were seen by Russia as encroaching on the country’s sphere of influence. On February 24th, 2022, Russia invaded Ukraine, marking the beginning of the war (Encyclopaedia Britannica, 2024).

Immediately, Western countries from the EU, NATO countries, and many other countries like Japan condemned Russia’s invasion. A coalition of mostly Western countries aimed to weaken Russia’s power by imposing an embargo on energy imports from Russia, attempting to leverage Russia’s dependence on natural resources to bring the war to an end.

In response to the invasion, the EU banned trade on various Russian products such as steel, coal, cement, rubber, wood, spirits, alcohol, seafood, and potash. Additionally, export bans were placed on luxury goods favored by Russian elites and products critical to Russia, including quantum computing, advanced semiconductors, machinery, transportation, and chemicals. Together this latter category of goods amounted to €22.8 billion euros, or 25% of the EU’s pre-war exports to Russia (Parry, 2022). In 2023, EU countries exported over €38 billion euros worth of goods to Russia, half of the value of exports in 2020 (Statista Research Department, 2024a). €300 billion euros of Russian Central Bank reserves have been blocked, with two-thirds of these reserves held in the EU. Around €20 billion euros worth of assets belonging to more than 1,500 sanctioned individuals and entities have also been frozen (European Council, 2023a).

As of August 2024, the EU has imposed 14 packages of sanctions on Russia. In the first few months of the war, trade in products that could have directly benefitted Russia’s military capabilities were banned. The EU first banned trade of semiconductors and cutting-edge technologies on February 25th, 2022, one day after the war (European Council, 2022a). In March and April 2022, Europe began banning trade of products like jet fuel, quantum computers and advanced semiconductors, high-end electronics, software, sensitive machinery, and transportation equipment (European Council, 2022c).

By June 2022, as the war showed no sign of stopping, the EU began to ban dual-use products, like chemicals that can be used to create chemical weapons (European Council, 2022b). Moving into 2023 and 2024, hundreds more types of dual use products that Russia can turn into weapons to support the war were banned for export, such as lithium batteries, thermostats, DC motors and servomotors for unmanned aerial vehicles (UAV), machine tools and machinery parts (European Council, 2023b). These products were critical for Russia to build drones and aerial vehicles, which became a major tool for the war.

Natural gas, oil, and energy imports were immediately subject to sanctions by the EU and trade in them halted. This sanction had the most significant impact for both sides and played an important role due to the strong dependencies between Russia and Europe. As a result of the EU measures, the proportion of Russia’s pipeline gas in EU imports decreased significantly, falling from over 40% in 2021 to approximately 8% in 2023 (European Council, 2024). Many countries have imposed a price cap for Russia oil, which decreases the revenue Russia gains from exporting oil (Psaledakis & Gardner, 2023). As a result of the sanctions on energy products, Russia’s economy shrank by 2.1% in 2022, and the sanctions limited the growth of the Russian economy in the immediate future. The downturn of Russia’s economy has hit the rural areas in Russia the hardest, because the government will cut government funding first to avoid protests in large cities (BBC, 2024).

However, the sanctions and embargo also have negative implications for the EU. Cutting energy imports is projected to cost each European citizen $1,953 cumulatively over the period from 2022 to 2030 (Perdanaet al., 2022). This move is certainly risky for European countries, as it puts pressure on their economies and affects the livelihoods of European citizens. The increased cost of living may also have potential impacts on elections for many EU leaders, as their domestic support could decrease if their citizens face significantly higher living expenses.

Still, a reduction in EU’s reliance on Russian natural gas imports is not entirely negative for European countries. A shift in energy trade dynamics could alleviate some of the security concerns faced by Europe. The European Union’s reliance on Russian gas has significantly decreased, falling from 45% in 2021 to only 15% in 2023 (European Commission, 2024). This reduction in dependency not only enhances the EU’s energy security but also encourages the diversification of energy sources and the acceleration of investments in renewable energy infrastructure. In the long term, these changes could lead to a more resilient and sustainable energy landscape for Europe.

Trade from 2023 to the Future

Although both Russia and the West faced negative impacts due to the sanctions at the initial stages of the war, both Russia and the West have been able to solve this problem by finding alternative sources. The EU’s primary suppliers of crude oil became the United States, Norway, and Kazakhstan, demonstrating that the EU successfully adapted to the evolving oil market and effectively eliminated its reliance on Russian oil (EUROSTAT, 2023). Both Europe and the US saw gas prices peak in August 2022, but by June 2023, gas prices had returned to pre-war levels (Statista Research Department, 2024b). The Western coalition has successfully adopted to the changes in trade after the war.

Russia also found alternative sources, and its economy remained relatively resilient against the sanctions from the West. India became the primary consumer for Russia’s sea-borne oil since the Western sanctions and has increased its trade ties with Russia (Reuters, 2024). China also began to strengthen its economic ties with Russia. China supplied many raw materials and items with military applications, which were banned by Western sanctions. In return, China also increased its purchase of crude oil and natural gas from Russia. In 2023, Russia overtook Saudi Arabia to become China’s leading crude oil supplier, with Beijing importing 107 million tons of crude oil from Moscow—a 24% increase from 2022. Additionally, China imported eight million tons of liquefied petroleum gas (LPG) from Russia in 2023, marking a 77% increase from 2021 (Ng & Ma, 2024).

Despite both Russia and the West’s ability to adapt, the costs for Russia to redirect its trade remain significantly higher compared to Europe and the West. First, revenue from energy exports constitute half of the federal budget for the Russian government, making the impact of sanctions on Russia far more substantial than the effects felt by European countries. Second, most trade in natural gas requires pipelines for transmission. Russia has historically relied on an extensive pipeline network established during the Soviet Union era, as well as additional pipelines constructed by Russia in subsequent years, nearly all of which went to Europe. Redirecting its natural gas exports to new markets would necessitate Russia constructing new pipeline systems. This endeavor would not only incur significant financial costs but also require substantial time to implement.

The most feasible consumer willing to trade in large quantities with Russia and capable of building the necessary pipeline infrastructure is China. China, with its large population and high demand for natural gas, shares a border with Russia featuring relatively flat terrain, making the construction of pipeline infrastructure more feasible. Even so, challenges to a Russia-China natural resource partnership remain. One of the biggest challenges is that most of Russia’s refining capacity is in the western part of the country, which would require that Russia either build new refineries (which are very costly) or run pipelines from the west of the country to the east (which would also be very costly). Additionally, recent developments and negotiations over a new pipeline system with China have not been favorable for Russia. Over the past two decades, China has been striving to diversify its energy sources, aiming to reduce reliance on any single supplier and to transition towards green energy. However, building a pipeline to trade natural gas with Russia would increase China’s dependence on Russian gas, contradicting its diversification efforts. Additionally, trading with Russia could harm domestic natural gas suppliers and undermine China’s goals of achieving a green energy transition by investing in green energy infrastructure to lower the costs of renewable energy (Yu, 2024). As a result, the energy trade between Russia and China may become less important in the future.

All of these factors combine to make the costs that Russia has suffered due to the sanctions extremely high.

Evaluating the Theories

The section above provided a general overview of the history of trade relations between Russia and the EU between the 1990s and 2024. How well do theories of International Relations explain the behavior of Russia and the EU? Based on the information above, there is support for the theory of Relative Gains and some support for Types of Traded Products, but less support for theory of Domestic Political Economy and Third-Party Consideration.

Relative Gain Framework

During the Russia-Ukraine War, the actions of the EU and Russia align well with the theory of Relative Gains, which states that during wartime countries engaged in trade with an adversary will cease trade if they benefit significantly less from the trade in that good than their adversary does. In this case, the EU, which benefits from trade with Russia less than Russia, has significantly reduced the amount of economic activity with Russia, which is consistent with the Relative Gains theory.

The trade of energy products benefits Russia far more than it does the EU, with the energy trade providing over 40% of the Russian federal budget, which is crucial for the country’s social and political stability. Additionally, this trade gives Russia leverage over European countries; by potentially cutting off energy supplies, Russia could influence European politics. The cessation of energy trade would also result in substantial losses for Russia, as the infrastructure, such as pipeline systems, that has been developed over decades would become obsolete.

Conversely, while the EU faced immediate economic impact when energy trade was reduced, it has the ability to find alternative sources, such as those from the US. On the other hand, Russia is having a much harder time finding alternative consumers. Most of the countries near Russia do not require as much energy as Europe and the pipeline infrastructure to move Russia’s oil and natural gas does not exist in many of these places. Although China is a potential major consumer, it has been reluctant to import large quantities of natural gas due to concerns about interfering with its domestic suppliers and its long-term green energy transition goals.

Types of Traded Products Framework

According to Grinberg’s Types of Traded Products theory, the likelihood of a product being traded increases with the time it takes to convert it for wartime use. However, if a conflict is prolonged, products that require more time to be adapted for military purposes can pose significant security risks to the opposing side, as states will have time to repurpose these goods for military applications. Therefore, the longer the war endures the stricter the trade restrictions on such products will become.

This theory can explain much of the trading behavior between Russia and the EU. For example, products like cutting-edge technologies that could directly enhance Russia’s war capabilities were among the first to be banned. These products have relatively short conversion times, meaning they can quickly be utilized to benefit Russia on the battlefield. Therefore, the Types of Traded Products theory accurately predicted that these products would be the first to face trade restrictions.

Trade in civilian and military dual-use products halted a few months into the conflict, around June 2022. By that time, it had become clear to both Russia and the EU that the war would not end in the near future. Products like lithium batteries, unmanned aerial vehicles (UAVs), machine tools, and machinery parts were all banned. Although these products have longer conversion times, the long nature of the war would provide the opposing side enough time to repurpose these items for military use. Consequently, products with longer conversion times were also banned as the conflict persisted, aligning with the predictions of the Traded Products theory.

However, energy trade was among the first to halt due to sanctions. According to Grinberg’s Types of Traded Products theory, raw materials and natural resources typically have longer conversion times, suggesting that products like oil and natural gas would be banned during the later stages of the conflict. Yet, this was not the case. One possible explanation—and one that is more consistent with the Relative Gain Framework—is that energy products are so critical to Russia and such a clear form of leverage that the US-led coalition targeted such goods to gain rapid strategic advantage. The imposition of sanctions on energy products can thus be understood as a strategic move to weaken Russia economically and reduce its ability to sustain prolonged military engagements. This deviation from the theory’s predictions underscores the critical role of energy in geopolitical strategy and the unique importance of energy products in the context of Russia-Ukrainian War.

Domestic Political Economy and Third-Party Consideration Framework

The behavior of the US and EU and Russia in the Russia-Ukraine War do not correspond to or provide support for the Domestic Political Economy and Third-Party Consideration frameworks. The EU has enacted sanctions against Russia, despite the risk of damaging their own domestic economy. One main aspect of Domestic Political Economy is that a government might be concerned about domestic political support, so it will attempt to stabilize the economy by continuing trade with the enemy. However, during the Russia-Ukraine War, European leaders have been willing to jeopardize their own domestic support in order to weaken Russia’s power. Therefore, the framework of Domestic Political Economy cannot be fully applied to the Russia-Ukraine War.

Similarly, the Third-Party Consideration framework also fails to explain the behavior of Russia and the EU. According to this framework, countries are willing to trade with belligerents because they fear that stopping trade will lead to stronger ties between the enemy and a third party. However, this was not the case in the Russia-Ukraine War. The countries of the EU were willing to cut trade with Russia, which indeed led Russia to form stronger ties with neutral countries like China and India. Hence, the Third-Party Consideration framework does not adequately account for the actions taken by the EU and Russia in this conflict.

Conclusion

The case study of the Russia-Ukraine War presented in this paper shows the power of the Relative Gains framework in explaining the behavior of Russia and the EU in the Russia-Ukraine War. While the Types of Traded Products framework can explain the general trends in trade for most goods and products, it falls short in accounting for the trade of energy commodities like oil and natural gas. Additionally, the Domestic Political Economy and Third-Party Consideration frameworks fail to adequately explain the actions of Russia and the EU.

One possible explanation for this is the strong desire among political leaders from the EU to weaken Russia. Recognizing the critical importance of energy products to Russia, EU leaders were willing to risk their own domestic economies and the potential for Russia to strengthen ties with third parties to punish Russia for the invasion. This is also important because it suggests that political leaders—at least in the early stages of a conflict—may not necessarily be sensitive or responsive to the concerns of their populations when it comes to the economic impact of conflict. In 2022, hundreds of thousands of people participated in protests over issues related to fuel and food, with most of the demonstrations concentrated in central and western Europe (Savage, 2023). Despite all the protests, no governments fell and EU countries continued to curtail their imports of Russian natural gas and continued to implement sanctions against Russia.

Although the Relative Gain framework is most applicable for the Russia-Ukrainian War, it is also important to address the weaknesses of the Relative Gain framework. The Relative Gain framework predicts that trade will decrease between belligerents if the balance becomes significantly unbalanced. However, the framework is ambiguous about what the threshold for “significantly” actually is and how much trade would be affected. Ideally, there would be a specific number or ratio that could be used as a cut-off for “significant.” Such a precise measure likely does not exist because it varies depending on the context of the conflict. This variability makes the theory difficult to apply in practice. Future research should develop tools that explain how much trade will be cut based on specific, quantifiable data or, at the least, a set of more robust criteria that can help analysts and observers determine what the likely course of economic relations in wartime will be.

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