Sanction in two countries
Economic sanctions have played a crucial role in shaping the economies of Russia and Ukraine, especially since 2014, when Russia annexed Crimea and Western countries imposed severe trade restrictions. The effects of these sanctions have been significantly influenced by informal governance, which operates outside formal regulations through unwritten rules, elite networks, and shadow economies. Both Russia and Ukraine have used informal governance to adapt to, bypass, or mitigate the impact of economic sanctions. However, while Russia relies on state-controlled informal networks to bypass restrictions, Ukraine has faced challenges due to corruption, war-driven trade disruptions, and fragmented elite influence.
Russia has developed a sophisticated system of informal governance that allows the state and key industries to navigate around Western economic sanctions. One of the most notable examples is the use of third-party countries to continue importing banned goods. Since sanctions prohibit the sale of high-tech components, military equipment, and industrial machinery to Russia, businesses have turned to countries such as Turkey, China, India, and the UAE to re-export restricted goods under different labels (Magyar & Madlovics, 2022). For example, microchips and machine parts essential for Russia’s defense industry have been routed through friendly or neutral nations, disguised as non-military goods.
Another major strategy is shadow banking and cryptocurrency transactions. Western sanctions have cut off Russian banks from the SWIFT international payment system, making it difficult to conduct cross-border transactions. However, informal financial networks allow businesses to operate outside of formal banking channels. Many Russian companies now use cryptocurrencies, offshore accounts, and informal money-transfer systems to continue international trade (Kosals & Maksimova, 2015). These methods help Russia maintain trade relations, despite the financial restrictions.
Informal governance in Russia also affects the energy sector, which remains critical for exports. Although sanctions have reduced Russian oil and gas sales to Europe, Moscow has reoriented trade toward China and India. Instead of stopping production, Russia has offered these countries discounted oil prices, often negotiated through private deals and elite networks rather than formal contracts (Schmidt, 2007). By leveraging politically connected oligarchs, Russia ensures that key energy exports continue to flow, allowing the government to maintain revenue despite sanctions.
Finally, Russian elites use informal governance to protect wealth from sanctions. Many oligarchs whose assets have been frozen in Western countries have moved their wealth through offshore companies and hidden investments. The use of shell companies, real estate purchases through intermediaries, and financial havens in places like Dubai and Hong Kong allows Russian elites to bypass restrictions while keeping their businesses operational. This demonstrates how informal governance enables financial survival despite external pressure.
Ukraine, unlike Russia, has not faced Western-imposed economic sanctions, but it has been severely affected by Russia’s trade restrictions and the war’s impact on its economy. However, informal governance in Ukraine has played both a positive and negative role in adapting to these challenges.
One of the biggest effects of informal governance in Ukraine has been its role in war-related trade and logistics. Since 2022, Ukraine’s traditional export routes for grain, steel, and industrial goods have been severely disrupted. The blockade of Black Sea ports forced businesses to rely on informal trade networks and alternative transportation routes through neighboring countries such as Poland and Romania (Ayres, 2017). These informal arrangements—often negotiated between local officials, business leaders, and international partners—have allowed Ukraine to continue exporting agricultural products despite the war.
However, Ukraine’s informal governance has also weakened the effectiveness of economic policies and aid distribution. A long history of corruption and oligarchic control over key industries has made it difficult to implement transparent economic recovery measures. For instance, international financial aid and military assistance have sometimes been delayed or mismanaged due to informal agreements and unofficial middlemen (Pieterse, 2022). The government has had to tighten anti-corruption measures to reassure Western allies that aid is being used properly.
Another issue is the informal arms trade that has emerged due to war-related demand. While the Ukrainian government receives official military aid, there have been reports of black market weapons sales, facilitated by informal governance networks. Some arms shipments have been diverted into private sales or used to strengthen paramilitary groups outside of formal government control (Kosals & Maksimova, 2015). This raises concerns about long-term security risks once the war ends.
While both countries use informal governance to navigate economic pressures, the key difference is who controls these networks. In Russia, informal governance is state-directed, with Putin’s government using elite-controlled networks to bypass sanctions and continue trade. In Ukraine, informal governance is fragmented, influenced by regional leaders, businesses, and external actors, making economic management less centralized.
One common issue both countries face is the rise of shadow economies due to sanctions and war. In Russia, the need to avoid Western restrictions has expanded black market trade, particularly in technology, energy, and finance. In Ukraine, war-related trade disruptions have increased smuggling and informal cross-border transactions, often involving corrupt officials or criminal groups.
Another similarity is how both Russia and Ukraine have used alternative financial systems to continue economic activities. Russia’s reliance on crypto transactions and offshore banking mirrors Ukraine’s use of informal financial channels to move foreign aid and trade payments quickly in wartime conditions.
However, the biggest difference is in international support and economic survival. Russia’s informal governance system enables it to work around sanctions, but this reliance on shadow networks weakens foreign investment and long-term growth. Ukraine, on the other hand, depends on Western financial and military support, which forces it to increase transparency to maintain international trust. While informal governance helps Ukraine adapt to wartime trade challenges, it also threatens its efforts to integrate into European economic systems that require strict financial regulations.
Informal governance plays a major role in how Russia and Ukraine deal with economic sanctions. In Russia, it allows the government and elite-controlled businesses to bypass restrictions through third-party trade, crypto transactions, and informal financial networks. This system helps the country maintain economic stability despite sanctions, but it also increases corruption and reliance on black market trade. In Ukraine, informal governance has helped the country adapt to war-related trade disruptions, but it has also weakened financial oversight and created challenges in aid distribution.
While informal governance offers short-term solutions, it also carries long-term risks. In Russia, the continued use of shadow networks may isolate the economy from global markets, making future recovery difficult. In Ukraine, informal governance may hinder economic reforms and prevent full integration with EU financial systems. Moving forward, both countries must find ways to balance flexibility with transparency to ensure economic resilience beyond war and sanctions.
References
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Ayres, S. (2017). Assessing the impact of informal governance on political innovation. Public Management Review, 19(1), 90–107. https://doi.org/10.1080/14719037.2016.1200665
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Kosals, L., & Maksimova, A. (2015). Informality, crime and corruption in Russia: A review of recent literature. Theoretical Criminology, 19(2), 278–288. https://doi.org/10.1177/1362480615581099
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Magyar, B., & Madlovics, B. (2022). The anatomy of post-communist regimes. Central European University Press.
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Pieterse, J. N. (2022). Learning from Covid: Three key variables. ProtoSociology, 38, 211–228.
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Schmidt, D. (2007). Anti-corruption: What do we know? Research on preventing corruption in the post-communist world. Political Studies Review, 5(2), 202–232.
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