The Price of Resilience: Input-Cost Shocks in European Supply Chains under EU Sanctions on Russia

Version 1.04, 16.09.2026. Abstract Do broad-based sanctions cause physical supply chain breaks, or do they operate primarily as input-cost shocks? This paper uses the 2022 EU sanctions against Russia as a quasi-experimental shock to study the adjustment margins of European manufacturing. I map legal sanctions into trade data and propagate the shock downstream using the AI-generated Production Network (AIPNET), yielding a product-specific exposure measure capturing indirect reliance on sanctioned inputs. Using a dynamic difference-in-differences design for five major industrial economies (Germany, Denmark, Spain, France, Italy), I find that supply chains bent but did not break. While there is no robust evidence of a collapse in physical import volumes, CIF unit values—which measure landed procurement costs rather than quality-adjusted transaction prices—rose sharply for exposed goods. In the import-value-weighted benchmark specification, which targets aggregate expenditure incidence rather than the average product-line response, a 10 percentage point increase in exposure is associated with a 9.7% increase in the CIF import-cost margin. The price mechanism itself is identified separately through unit values. Applying the weighted incidence estimate to the 2021 import base yields a first-order border-expenditure accounting estimate of approximately 11.4 billion USD for the nine considered EU economies in 2022. I show that unlike the US trade war, where policy uncertainty caused extensive-margin adjustments, the hard constraint of the 2022 embargo generated an immediate resilience premium: in the shock period, exposed supply chains showed no robust collapse in physical import quantities while facing higher landed costs. The sanctions thus operated as a targeted input-cost shock at the border. The analysis does not identify how this additional import-side burden was ultimately divided between firm margins, downstream prices, quantities, and consumers. Keywords: Sanctions; Supply Chain Resilience; Production Networks; Trade Diversion; Import Prices JEL Codes: F13; F14; F51; L23