An Estimation of The Impact of Economic Sanctions and Oil Price Shocks on Iran-Russian Trade: Evidence from a Gravity- VEC Approach


Department of World Economy, Faculty of Economics, Saint Petersburg State University, St. Petersburg, Russia



This article is an empirical attempt to explore the relationship between sanctions (financial and non-financial), oil price shocks and Iran-Russian bilateral trade flows over the period 1991–2014. In contrast to earlier studies in which a gravity model has been estimated through a panel data approach, in this paper the authors apply a gravity model for only two countries and do the estimations using the vector error correction approach. The overall estimation results indicate that financial sanctions, non-financial sanctions and oil price shocks negatively impact the Iran-Russian trade. Furthermore, financial sanctions had the greatest negative impact on Iran-Russian trade rather than non-financial sanctions and sharp oil price shocks.


Allen, F., & Giovannetti, G. (2011). The Effects of the Financial Crisis on Sub-Saharan Africa. Review of Development Finance, 1(1), 1–27.
Anderson, J. E. (1979). Theoretical Foundation for the Gravity Equation. American Economic Review, 69(1), 106–116.
Anderton, C. H. (2001). The Impact of War on Trade: An Interrupted Time-Series Study. Journal of Peace Research, 38(4), 445–457.
Atashbar, T. (2013). Iranian Disease: Why a Developing Country’s Government Did not Listen to Economists' Advises. Americal Journal of Economics and Sociology, 72(3), 732–760.
Barret, S. (1997). The Strategy of Trade Sanctions in International Environmental Agreements. Resource and Energy Economics, 19(4), 345–361.
Bazooabandi, S. (2015). Sanctions and Isolation, the Driving Force of Sino-Iranian Relations. East Asia, 32, 257–271.
Beckmann, E., & Fidrmuc, J. (2012). Oil Price Shock and Structural Changes in CMEA Trade: Pouring Oil on Troubled Waters? The European Journal of Comparative Economics, 9(1), 31–49.
Beine, M., Bos, C. S., & Coulombe, S. (2012). Does the Canadian Economy Suffer from Dutch Disease? Resource and Energy Economics, 32(4), 468–492.
Bennkhodja, M. T. (2014). Monetary Policy and the Dutch Disease Effect in an Oil Exporting Economy. International Economics, 138, 78–120.
Van Bergeijk, P. A. G. (1992). Diplomatic Barriers to Trade. De Economist, 140(1), 45–64.
Bergstrand, J. H. (1989). The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade. Review of Economics and Statistics, 71, 143–153.
Black, J. L. (2004). Vladimir Putin and the New World Order: Looking East, Looking West? Maryland: Rowman & Littlefield Publishers.
Blumenfeld, J. (1987). The Economics of South African Sanctions. Intereconomics, 22(4), 190–198.
Bouoiyour, J., Selmi, R., Kumar Tiwari, A., & Shahbaz, M. (2015). The Nexus Between Oil Price and Russia’s Real Exchange Rate: Better Paths via Unconditional vs Conditional Analysis. Energy Economics, 51, 54–66.
Brocker, J. (1989). Partial Equilibrium Theory of Interregional Trade and the Gravity Model. Spatial Interaction: Theory and Applications, 66(1), 7–18.
Brun, J. F., Carrere, C., Guillaumont, P., & De Melo, J. (2002). Has Distance Died? Evidence from a Panel Gravity Model. World Bank Economic Review, 19(1), 99-119.
Byers, D. A., Talan, B. I., & Lesser, B. (2000). New Borders and Trade Flows: A Gravity Model Analysis of the Baltic States. Open Economies Review, 11(1), 73–91.
Carbaugh, R. J. (2014). International Economics. Boston: Cengage Learning Press.
Chen, N., & Novy, D. (2011). Gravity, Trade Integration, and Heterogeneity Across Industries. Journal of International Economics, 85(2), 206–211.
Cheraghali, A. (2013). Impacts of International Sanctions on Iranian Pharmaceutical Market. DARU Journal of Pharmaceutical Sciences, 21(64), 1–3.
Deardorff, A. V. (1998). Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World. In The Regionalization of the World Economy. Chicago: University of Chicago Press.
Denant-Boemont, L., Masclet, D., & Noussair, C. N. (2007). Punishment, Counter Punishment and Sanction Enforcement in a Social Dilemma Experiment. Economic Theory, 33(1), 145–167.
Dick, H., Gupta, S., Vincent, D., & Voigt, H. (1984). The Effect of Oil Price Increases on Four Oil-poor Developing Countries: A Comparative Analysis. Energy Economics, 6(1), 59–70.
Dickey, D. A., & Fuller, W. A. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica, 49, 1057–1072.
---------- (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74, 427–431.
Dickie, P. (1992). The Gulf Crisis One Year on: Problems for International Traders. Marine Policy, 16(2), 107–110.
Disdier, A., & Head, K. (2008). The Puzzling Persistence of the Distance Effect on Bilateral Trade. The Review of Economics and Statistics, 90(1), 37–48.
Ekanayake, E. M., Mukherjee, A., & Veeramacheneni, B. (2010). Trade Blocks and the Gravity Model: A Study of Economic Integration among Asian Developing Countries. Journal of Economic Integration, 25(4), 637–643.
Elliott, K. A., & Uimonen, P. P. (1993). The Effectiveness of Economic Sanctions with Application to the Case of Iraq. Japan and the World Economy, 5(4), 627–643.
Essers, D. (2013). Developing Country Vulnerability in Light of the Global Financial Crisis: Shock Therapy. Review of Development Finance, 3(2), 61–83.
Evenett, S. J. (2002). The Impact of Economic Sanctions on South African Exports. Scottish Journal of Political Economy, 49(5), 557–573.
Fang, C., & You, S. Y. (2014). The Impact of Oil Price Shocks on the Large Emerging Countries’ Stock Prices: Evidence from China, India and Russia. International Review of Economics & Finance, 29, 330–338.
Fardmanesh, M. (1991). Dutch Disease Economics and Oil Syndrome: An Empirical Study. World development, 19(6), 711–717.
---------- (1990). Terms of Trade Shocks and Structural Adjustment in a Small Open Economy: Dutch Disease and Oil Price Increases. Journal of Development Economics, 34(1-2), 339–353.
Faria, J. R., Mollick, A. V., Albuquerque, P. H., & Leon Ledesma, M. A. (2009). The Effect of Oil Price on China’s Exports. China Economic Review, 20(4), 793–805.
Farzanegan, M., & Raeisian Parvari, M. (2014). Iranian-Oil-Free Zone and International Oil Prices. Energy Economics, 45, 364–372.
Farzanegan, M. R., & Markwardt, G. (2009). The Effects of Oil Price Shocks on the Iranian Economy. Energy Economics, 31(1), 134–151.
Felbermayr, G., & Groschl, J. (2013). Natural Disasters and the Effect of Trade on Income: A New Panel IV Approach. European Economic Review, 58, 18–30.
Furstenberg, G. M. (1991). Scoring the Success of Sanctions. Open Economies Review, 2(3), 305–313.
Goh, S., Wong, K. N., & Tham, S. Y. (2013). Trade Linkages of Inward and Outward FDI: Evidence from Malaysia. Economic Modelling, 35, 224–230.
Helpman, E., & Krugman, P. (1985). Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition and the International Economy. Massachusetts: MIT Press.
Idrisov, G., Kazakova, M. & Polbin, A., (2015). A Theoretical Interpretation of the Oil Prices Impact on Economic Growth in Contemporary Russia. Russian Journal of Economics, 1(3), 257–272.
IRICA. (2015). Retrieved November 8, 2015 from
Ito, K. (2009). The Russian Economy and the Oil Price: A Cointegrated VAR Approach. Transition Studies Review, 16(1), 220–227.
Jabalameli, F., & Rasoulinezhad, E. (2012). Iran Solutions against the Economic Sanctions: Analytic Hierarchy Process Approach. American Journal of Business and Management. 1(1), 23-29.
Kaplow, L. (1990). A Note on the Optimal Use of Nonmonetary Sanctions. Journal of Public Economics, 42(2), 245–247.
Karimi, J. (2010). Iran-Russia Relations (The New Cooperation Era). Tehran: Iran’s Ministry of Foreign Affairs Press.
Kaukin, A. S. (2013). Empirical Estimates of the Gravity Model of the Russian Foreign Trade. Russian Foreign Economic Bulletin, 4, 71–84.
Korhonen, L., & Ledyaeva, S. (2010). Trade Linkages and Macroeconomic Effects of the Price of Oil. Energy Economics, 32(4), 848–856.
Krugman, P. (1987). The Narrow Moving Band, the Dutch Disease, and the Competitive Consequence of Mrs. Thatcher: Notes on Trade in the Presence of Dynamic Scale Economies. Journal of Development Economics, 27(1-2), 41–55.
Kudrin, A. & Gurvich, E. (2015). A New Growth Model for the Russian Economy. Russian Journal of Economics, 1(1), 30–54.
Lam, S. L. (1990). Economic Sanctions and the Success of Foreign Policy Goals: A Critical Evaluation. Japan and the World economy, 2(3), 239–248.
Leamer, E. E. (2007). A Flat World, a Level Playing Field, a Small World After All, or None of the Above? A Review of Thomas L Friedman’s The World is Flat. Journal of Economic Literature, 45(1), 83–126.
Linder, S. B. (1961). An Essay on Trade and Transformation.
New Jersey: John Wiley and Son.
Linneman, H. (1966). An Econometric Study of International Trade Flows. Amsterdam: North-Holland Publishing Co.
Liu, X. & Xin, X. (2011). Transportation Uncertainty and International Trade. Transport Policy, 18, 156-162.
Lutz, C. & Meyer, B. (2009). Economic Impacts of Higher Oil and Gas Prices: The Role of International Trade for Germany. Energy Economics, 31(6), 882–887.
Malikov, E. (2016). Dynamic Responses to Oil Price Shocks: Conditional vs Unconditional (a)Symmetry. Economics Letters, 139, 31–35.
Malle, S. (2013). Economic Modernization and Diversification in Russia. Constraints and Challenges. Journal of Eurasian Studies, 4(1), 78–99.
Manzoor, D., Haqiqi, I. & Aghababaei, M. E. (2012). Modeling Dutch Disease in the Economy of Iran: A Computable General Equilibrium Approach. Quarterly Energy Economics Review, 8(31), 59–84.
Mardaneh, S. (2012). Inflation Dynamics in a Dutch Disease Economy. University of Leicester Working Paper,12/25, Retrieved from
Martinez-Zarzaso, I. (2003). Gravity Model: An Application to Trade Between Regional Blocs. Atlantic Economic Journal, 31(2), 174–187.
Maugeri, L. (2006). The Age of Oil: The Mythology, History, and Future of the World’s Most Controversial Resource. Connecticut: Praeger Publishers.
Maui, V., & Uleukaev, A. (2015). Global Crisis and Challenges for Russian Economic Development. Russian Journal of Economics, 1(1), 4–29.
Mirza, D., & Zitouna, H. (2010). Oil Prices, Geography and Endogenous Regionalism: Too Much Ado About (Almost) Nothing. CPII Working Paper, 2009-26, Retrieved from
Narayan, S., & Nguyen, T. T. (2016). Does the Trade Gravity Model Depend on Trading Partners? Some Evidence from Vietnam and Her 54 Trading Partners. International Review of Economics and Finance, 41, 220-237.
Nasre Esfahani, M., & Rasoulinezhad, E. (2016). Will Be There New CO2 Emitters in the Future? Evidence of Long-Run Panel Co-Integration for N-11 Countries. International Journal of Energy Economics and Policy, 6(3), 463–470.
Neuenkirch, M., & Neumeier, F. (2015). The Impact of UN and US Economic Sanctions on GDP Growth. European Journal of Political Economy, 40, 110–125.
Newnham, R. E. (2015). Georgia on My Mind? Russian Sanctions and the End of the “Red Revolution”. Journal of Eurasian Studies, 6(2), 161–170.
---------- (2013). Pipeline Politics: Russian Energy Sanctions and the 2010 Ukrainian Elections. Journal of Eurasian Studies, 4(2), 115–122.
Novy, D. (2013). International Trade without CES: Estimating Transloggravity. The Journal of International Economics, 89, 271–282.
Okubo, T. (2007). Trade Bloc Formation in Inter-war Japan. A gravity Model Analysis. Journal of the Japanese and International Economies, 21(2), 214–236.
Oxenstierna, S. (2015). Russia’s Defense Spending and the Economic Decline. Journal of Eurasian Studies, 7(1), 60–70.
Papazoglou, C. (2007). Greece’s Potential Trade Flows: A Gravity Model Approach. International Advances in Economic Research, 13(4), 403–414.
Phillips, P. C. B. & Perron, P. (1988). Testing for a Unit Root in Time Series Regression. Biometrica, 75(2), 335–346.
Popova, L. & Rasoulinezhad, E. (2016). Have Sanctions Modified Iran’s Trade Policy? An Evidence of Asianization and De-Europeanization through the Gravity Model. Economies, 4(4), 1–15.
Porojan, A. (2001). Trade Flows and Spatial Effects: The Gravity Model Revisited. Open Economies Review, 12, 265–280.
Qianqian, Z. (2011). The Impact of International Oil Price Fluctuation on China’s Economy. Energy Procedia, 5, 1360–1364.
Rasoulinezhad, E. (2017). China’s Foreign Trade Policy with OPEC Member Countries. Journal of Chinese Economic and Foreign Trade Policy, 10(1), 61–81.
---------- (2016). Investigation of Sanctions and Oil Price Effects on the Iran-Russia Trade by Using the Gravity Model. Vestnik of St Petersburg University, Series 5 (Economics), 2, 68–84.
---------- (2012). Evaluation of Countries Solution against the US Economic Crisis through  a Multiple  Attribute Decision Model. Journal of Economics and International Finance. 4 (1), 1-9.
Rasoulinezhad, E., & Kang, G. S. (2016). A Panel Data Analysis of South Korea’s Trade with OPEC Member Countries: The Gravity Model Approach. Iranian Economic Review, 20(2), 203–224.
Rati, R. A., & Vespignani, J. L. (2015). OPEC and Non-OPEC Oil Production and the Global Economy. Energy Economics, 50, 364–378.
---------- (2013). Why are Crude Oil Prices High when Global Activity is Weak? Economics Letters, 121(1), 133–136.
Rautava, J. (2004). The Role of Oil Prices and the Real Exchange Rate in Russia’s Economy - a Cointegration Approach. Journal of Comparative Economics, 32(2), 315–327.
Redding, S., & Venables, A. J. (2004). Economic Geography and International Inequality. The Journal of International Economics, 62(1), 53–82.
Rykunova, T. (1995). Trade and Investment Opportunities in the Petroleum Industry of Russia. Chemistry and Technology of Fuels and Oils, 31(3), 99–103.
Saboori, B., Rasoulinezhad, E., & Sung, J. (2017). The Nexus of Oil Consumption, CO2 Emissions and Economic Growth in China, Japan and South Korea. Environmental Science and Pollution Research, 24(1), 1–20.
Sachs, J. D., & Warner, A. M. (2001). The Curse of Natural Resources. European Economic Review, 45, 827–838.
Santos-Paulino, A. U. (2001). Effects of Trade liberalization on Imports in Selected Developing Countries. World development, 30(6), 959–974.
Sek, S. K., Teo, X. Q., & Wong, Y. N. (2015). Comparative Study on the Effects of Oil Price Changes on Inflation. Procedia Economics and Finance, 26, 630–636.
Shirov, A. A., Yantovskii, A. A., & Potapenko, V. V. (2015). Evaluation of the Potential Effects of Sanctions on Economic Development of Russia and the European Union. Studies in Russian Economic Development, 26(4), 317–326.
Smirnov, S. (2015). Economic Fluctuations in Russia (from the late 1920s to 2015). Russian Journal of Economics, 1(2), 130–153.
Soori, A. R., & Tashkini, A. (2012). Gravity Model: An Application to Trade between Iran and Regional Blocs. Iranian Economic Review, 16(31), 1–12.
Taghavi, M., & Hosein Tash, N. (2011). Testing the Gravity Model in Iran and Some Oil Exporting Countries. Economic Research Review, 11(3), 187–212.
Taghizadeh Hesary, F., Yoshino, N., Abdolo, Gh., & Farzinvash, A. (2013). An Estimation of the Impact of Oil Shocks on Crude Oil Exporting Economies and Their Trade Partners. Frontiers of Economics in China, 8(4), 571–591.
Taghizadeh Hesary, F., Rasoulinezhad, E., & Kobayashi, Y. (2015). Oil Price Fluctuations and Oil Consuming Sectors: An Empirical Analysis of Japan. ADBI Working Paper, 539, Retrieved from
Taghizadeh Hesary, F., Rasoulinezhad, E., & Kobayashi, Y. (2016). Oil Price Fluctuations and Oil Consuming Sectors: An Empirical Analysis of Japan. Economics and Policy of Energy and the Environment, 2, 33-51.
Takatsuka, H., Zeng, D., & Zhao, L. (2015). Resource-based Cities and the Dutch Disease. Resource and Energy Economics, 40, 57–84.
Tian, H., & Whalley, J. (2010). Trade Sanctions, Financial Transfers and BRIC Participation in Global Climate Change Negotiations. Journal of Policy Modelling, 32(1), 47–63.
Tinbergen, J. (1962). Shaping the World Economy: Suggestions for an International Economic Policy. New York: The Twentieth Century Fund Publication.
Trademap. (2015). Retrieved November 10, 2015 from
Traekorova, E. C., & Pelevina, K. A. (2014). Gravity Model of BRICS’s Foreign Trade. Journal of Saratov University, 1(2), 133–142.
Trofimova, O. E. (2015). Russian-Israeli Economic Cooperation Under Economic Sanctions. Herald of the Russian Academy of Sciences, 85(5), 459–465.
Ulengin, F., Cekyay, B., Palut, P. T., Ulengin, B., Kabak, Q., Ozaydin, O., & Ekici, S. O. (2015). Effects of Quotas on Turkish Foreign Trade: A Gravity Model. Transport Policy, 38, 1–7.
Wooldridge, J. M. (2013). Introductory Econometrics: A Modern Approach. Boston: Cengage Learning publication.
World Bank. (2015). Global Economic Perspects. Retrieved from
Xuegang, C., Zhaoping, Y., & Xuling, L. (2008). Empirical Analysis of Xinjiang’s Bilateral Trade: Gravity Model Approach. Chinese Geographical Science, 18(1), 9–16.
Yang, J., Askari, H., Forrer, J., & Teegen, H. (2004). U.S. Economic Sanctions: An Empirical Study. The International Trade Journal, 18(1), 23–62.
Ziaee Bigdeli, M. T., Gholami, E., & Tahmasbi Beldaji, F. (2012). Investigation of the Impact of Economic Sanctions on Iran’s Trade: Application of Gravity Model. Journal of Economic Research, 13(48), 109–119.
Zivot, E., & Wang, J. (2006). Modelling Financial Time Series with
. New York: Springer press.