Are sanctions costly for the energy industry of sanctioning states? A difference-in-differences approach to sanctions during the Russia–Ukraine war

Abstract

This study investigates the economic effects of states' implementing sanctions against Russia during the early stages of the Russia–Ukraine conflict in 2022. It specifically examines the effect of these sanctions on the stock returns of energy firms in a sample of 57 countries between August 2021 and October 2022, employing Difference-in-Differences imputation estimators to analyse heterogeneous event studies. The results show that sanctions initially lead to a short-term increase in energy stock returns in the treatment countries, but this effect diminishes over time. The study also reveals that sanctions affect energy stock returns in NATO countries and flawed democracies significantly more than non-NATO and fully democratic nations. The research includes robustness tests using stricter sanctions dates and an expanded sample, providing valuable insights for policymakers and investors navigating geopolitical events and their economic consequences.