Update: Economic Sanctions - What Do They Do & What Good Are They?

Recently, we raised the question of whether economic sanctions really work. Or, perhaps more precisely, whether they do what we think they do.

​Our first piece on this subject referenced the fact that nearly 30% of the world's countries are under US economic sanctions at present. That is obviously a lot and it struck as pretty crazy that we throw sanctions around pretty freely without ever really asking whether they work as intended or whether the tradeoffs are worth it.

Since that time, further evidence has come to light of Russia sidestepping US sanctions in a pretty brazen manner. And, in parallel, we have done more digging into this topic.

On the first, for instance, over the last few weeks:

• ​The FT has an impressive deep dive into the fact that a tiny Indian company based out of Mumbai that is buying up dozens of tankers t ship Russian oil.

• ​The New York Times has also uncovered a lot more about the identity of the "black fleet" that transports Russian oil and how it gets business done.

• ​And a team at the WSJ has carefully catalogued how host of smaller Middle Eastern and Central Asian countries have begun importing far more of certain types of sanctioned goods.

They aren't alone but these are some of the best examples of this genre of work and demonstrate both the scope of the problem and the impact - or lack thereof - that the sanctions have had on the global economy.

In the irony of all ironies, Saudi Arabia is now importing Russian oil. refining it into diesel and exporting it back to Europe. We are shipping Western arms to the front in Ukraine on trains and trucks powered by Russian diesel refined in Saudi Arabia....

That is what they call a "tough look" in the business.

The above examples are impressive pieces of journalism in their own right. It is great to see this solid work being done. Journalists and activists are hard at work uncovering Russian chicanery and going deep to do so. The negative might be that most of the world knows our sanctions policy is, at best, paper thin and unafraid to be so flagrantly flouting the law.

This is perhaps not surprising when the incentives and the speed of action for the "black hats" trying to circumvent our sanctions regime is far greater than our white hat campaign.

The conclusion is simple: we must do much better and we also need to make our policies far more popular in the developing world. Our rhetoric needs to be backed up by far more real action. Those actions would likely involve tough tradeoffs.

We, the West, are pretty terrible at tradeoffs. This makes it hard to convince other countries to do so.

It is simply difficult to expect much compliance from countries that are, unlike most of the West, far from convinced about either the worthiness of our values or the feasibility of following the sanctions.

Regardless of whether this is as bad as we believe it is, the game of whack-a-mole underlines how difficult it will be to achieve our sanction aims under a regime where the vast majority of the world's:

• countries,

• Gross Domestic Product

• and people

are operating under a very different set of priorities.

For instance, since our first piece we have also did some more work on just how thin the support for sanctioning Russia actually is. We were ready to be shocked but we were still stunned at the statistics.

Only 40 countries have formal sanctions on Russia. Of these, nearly all are from the West, meaning Europe and North America. There are only 2 countries from Asia and precisely zero from Latin America and Africa. Zero.

Furthermore, at the United Nations, it seem like a real positive that 140 countries came together to condemn the Russian invasion of Ukraine but the 35 that abstained account for well over half of the world's population.

Ouch.

This unpleasant fact demonstrates two things:

• The first is just how unpopular any formal economic sanction of Russia is in the "Global South" of the developing world.

• The second is that the liberal world order the West is selling doesn't seem to be that appealing beyond a very narrow list of close allies.

All of this really gives some strength to the meme mocking the idea of what really constitutes the "international community we have mentioned before:

It is a sobering image and one worth keeping in mind when you hear soaring rhetoric about the liberal world order or the "international" response to Russian aggression.

For every Estonia or Poland determined that this aggression will not stand there is an Egypt or Brazil that has a far more nuanced view of the need to balance condemning Russian violence with the need to manage food inflation and fertilizer imports.

If we want the Global South's support, we better think a bit deeper about whether our policies - on Ukraine, on climate change, on AI, you name it - actually align with their interests.

Very often we will find that they do not. And so it is very difficult to ask them to make difficult and costly sacrifices.

This is hardly surprising. After all, the strength of own Western commitment are frequently pretty weak. Is it any wonder we struggle to convince other, poorer, non Western countries to feel great conviction over Ukraine when so few European countries (or Canada) come nowhere close to meeting the 2% of GDP on defense spending requirement under NATO membership?

Just saying its the right thing to do doesn't seem to be cutting it. Can you blame them?

*******

Have questions? Care to find out more? Feel free to reach out at contact@pebble.finance or join our Slack community to meet more like-minded individuals and see what we are talking about today. All are welcome.