Question: Do Economic Sanctions Even Work?!
File this under questions that rarely get asked:
The West and especially the US spends a lot of time sanctioning other countries, companies and, even increasingly, individual people.
Does this strategy work?
We have wondered about this for a bit because every time any country does something we don't like it is the first policy lever we reach for. It almost feels as if sanctions have replaced and well, the results always seem underwhelming.
Here is a fact that doesn't get enough airplay:
The US, UK, EU and Japan now have formal sanctions against 30% of the countries on earth.
30%!
For context, in the early 1990s, a time of great power vacuum, civil war, multiple genocides and high inter and intra state conflict, the number was around 10%.
So, the trend is clear, as is the absolute level. As a nation and as an alliance, we love to sanction and presumably we do this because we believe these tools will work. It is a little less clear that they do or do in the way that we hope. It is also very true that these policies and programs have unintended and unavoidable side effects.
Additionally, it sometimes feel that sanctions have replaced other, more difficult and painstaking tools in the international relations toolkit. Measures such as diplomacy, alliance building and pragmatic policy making have all been deprioritized by the sanction lever of foreign policy.
The famous sanction use cases are, of course, widely known.
Saddam Hussein's Iraq
North Korea
Iran
Syria
And now Vladimir Putin's Russia
All of these regimes are under serious distress and yet the leaders of these regimes seem to have been (or still are!) just fine. There are the infamous stories about all of Kim Jong Il's cognac and cigars and Iran's mullahs are holding on despite decades of ever tougher sanctions. The less said about the Assad regime, the better.
And we will be honest, it is a bit less clear where the rest of the 30% comes from. I suppose you start up adding the Sudans and Pakistans and Venezuelas and you very quickly get to a significant minority of states.
As Freedom House patiently records every year, we live in an age of declining democracies and rising autocracies, kleptocracies, oligarchies and flat-out, old school military dictatorships.
So, anyway, the evidence is clear. We looooove to sanction and sanction and sanction and yet we almost never seem to stop and ask whether this is an effective strategy?
Nor do we ask what the downsides are of these sanctions either.
Or we didn't. Increasingly we are being forced to recognize that economic sanctions do have negatives attached to them, even if we would rather avoid discussing them.
There are two variants to these downsides.
The first is that by slowly but surely adding more and more countries to the list of the sanctioned we have of course given a very clear lesson that being part of a global economic system that can make it easier to punish the participants makes that system far less desirable.
The second is that very evidently, sanctions often don't really work which of course raises the question about whether the chief reason we employ them for our own purposes, rather than others.
Like a lot of things in the 21st century, sanctions are real in the sense that they are doing something concrete and you can point to them and say: see! We did that. We are doing something.
But they are also amorphous and hard to track and measure and far easier to wave a pen. Sanctions in many ways keep us from confronting the really tough questions like regime change or military engagement or actually resolving a major humanitarian crisis like a civil war or famine or ethnic persecution.
It isn't particularly pleasant to think about but the chief benefit of economic sanctions us feel good rather than actually do good.
Why don't sanctions work?
There are two broad pathways sanction struggle to work effectively:
First, regimes can quickly adapt and the effect will be just fine.
The second is a bit slippery but is the signal about what sanctions send about signing up for the western dominated systems of trade, financial institutions and currencies.
On the first, we have had the canonical example with Russia after last year's horrific invasion of Ukraine. We have banned endless Russian exports up and to and including oil and oil distillates.
This sounded great at the time and we loved talking tough but we are less quick to explore whether these sanction systems are working.
For instance, according to our own US Energy Information Administration the US is importing a record amount of petroleum products from India.
See here:
That is quite an achievement. India isn't Mexico or even Nigeria. It isn't just an ocean away but rather an ocean and a half. Moreover, India also doesn't have large amount of native oil resources and instead their refiners are, of course, buying large amounts of oil from a very willing seller at cheap prices: Russia.
That is right. India has saved billions buying discounted Russian crude and is buying so much of it that they are unable to use all of it domestically and are selling it - at good rates - on the global market.
Where all of this ends up is that US consumers and businesses are buying Russian oil via an Indian middleman which is being used as a backdoor for supposedly banned Russian to make it onto the world market.
This isn't some great secret. As you can see above from the EIA, this is frequently reported by government agencies and news organizations around the world. This isn't a purely American problem either. It is also happening in Europe as well, which is busy importing record amounts of fuel from the subcontinent while Ukraine flags fly high.
In the end, despite all the proclamations and press conferences, it would seem as if Russia is still exporting a lot of oil - though at a slight discount to global prices. On a conference call on Friday, Shell CEO Wael said Russia is producing "in essence at or slightly above pre-invasion levels."
Oh.
Meanwhile, Russia is also circumventing sanctions on importing goods IN to the country. This is everything from sensitive technology and hardware to luxury goods for the Russian elite who have decided that, actually, they would prefer real Chambertin and Camembert than the Georgian or Urals equivalent.
This can also be tracked. Suddenly countries like Turkey, Armenia and Kazakhstan have companies that are placing orders that are far above historical norms for all manner of suspicious goods. What industry in these countries is suddenly needing double or trouble the number of semiconductor chips exactly?
Turkey, for example, in 2021 imported about $831 million of seminconductors and transistor chips, according to United Nations data, and exported about $79,000 worth to Russia that year. In 2022, suddenly Turkey imported nearly $1.7 billion and exported $3.2 million worth to Russia and that is what we know about.
That is quite a jump.
There are two conclusions from all this:
For one, sanctions are always a game of whack-a-mole. The sanctioned keep working hard to find loopholes, cutouts and other methods to get around the regime and the sanctioning keep trying to close off these avenues. Everyone works very hard to basically stand still and that end state keeps the oil flowing, of course.
But the second is, we sort of wonder how much of the current process is acting as a beacon around the world to be very, very careful about signing up for a US-led Western economic multilateral system of rules and regulations.
Right now all the focus is on number 1. That might be to the good. After all, the Russian oil is directly fueling a horrific and unjust war that is destroying a country and maiming its people. We should keep the pressure on.
But perhaps the focus should nonetheless be on number 2? We may not be cognizant of it but we are daily carrying out a very clear advertising campaign to countries all around the world to be very careful about being overly reliant or even signing up for further integration with Western systems of governance and common standards. This is for the simple reason that, if you sign up for the standards and underlying system, you are vulnerable to it being either taken away or, turned against you. .
There are many countries from Modi's India to Xi Jinping's China to a large number of states in the Global South that will be watching this and thinking the Western campaign against Russia is providing a blueprint to avoid becoming too entangled in Western dominated norms, values and standards.
We are building a clear case for different trading systems, different internets, different banking systems.
"Resilience" is a popular word and theme these days. That resilience doesn't necessarily have to align with Western values or our narrow definition of the term.
Whether it be a separate trading system, a separate internet or simply taking care not to be too dependent on any one country or regional bloc, the world is watching the sanctioning of Russia and perhaps taking the wrong conclusions.
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