Dynamic effects of EU economic sanctions on the EU-Russian energy market: Evidence on crude oil and natural gas

The rise of economic sanctions on Russia has exposed critical vulnerabilities in the EU energy systems. In this context, the study analyzes the dynamic effects of EU economic sanctions against Russia on crude oil price, natural gas price, and EU dependence on Russian crude oil and natural gas. The study introduces a novel Economic Sanction Effectiveness index composed of sanction type, economic leverage, media effect, and time decay. Incorporating this index in the SVAR model, the results show: (1) crude oil and natural gas prices rise after a sanction shock, then fall below their baseline; (2) following a sanction shock, EU dependence on Russian crude oil falls quickly and continues to decline during the first year; (3) EU dependence on Russian natural gas shows no immediate effect after the sanction shock, but begins to decrease after three months; (4) economic sanctions account for up to 30 % and 40 % of the fluctuations of EU dependence on Russian natural gas and crude oil; (5) historical decomposition highlights the implementation of the oil price cap as a key event that shifted the impact of sanction shocks. Overall, the results offer valuable empirical insights for policymakers regarding the implications of sanctions on energy markets.