Comparing the sanctions against Russia and Iran: VAR modelling of the political-economic impact of sanctions

This working paper analyses the interaction between economic and political variables paying special attention to how this interaction develops over time. We use an innovative approach to sanctions that provides a dynamic, forward-looking, perspective and deals with the economic and political outcome of sanctions simultaneously. We use Impulse Response Functions to report the main results of a comprehensive set of unrestricted Vector Auto Regression models that we use to analyse how negative oil and gas shocks impact on the economy and politics in Russia and Iran in order to find out differences and agreements between those cases. In both cases we find that the limitation of energy rents can improve political conditions in the short to medium term, but also that the beneficial impact of sanctions is limited as both economic and political behaviour adjust when time passes by.