How can we overcome sanctions and related conflicts? Very difficult, but I would argue that all sides would have to try to find compromises or contribute to finding compromises in order to get out of this impasse. We really urgently need to get back to and revive multilateralism.
What are sanctions?
Sanctions (economic restrictions or embargoes on trade or technology transfer or bans on investment) are economic ways of “punishing” a country that has misbehaved in the view of another country or of a group of other countries (thus e.g. has committed a military invasion, violated international law, tries to illegally acquire nuclear weapons, or is accused of suppressing human rights).
One may distinguish two types of sanctions: ordinary or primary and extra-territorial or secondary sanctions. Primary sanctions may be of bilateral or multilateral nature, where the sanctioning country or countries restrict their own trade, investment or technological flows to or from the sanctioned country. Extraterritorial sanctions comprise restrictive measures by the sanctioning country, say country A, not only against the sanctioned country B, but also against economic links whichever are targeted, of country B with third countries. Thus extra-territorial sanctions do not only punish the sanctioned country, they also punish enterprises of third countries trading with and/or investing in the sanctioned country.
Classical protectionist measures relate to, if you wish, tariff increases or impositions of quotas or bans, and thus relate to their original goal, to reduce imports and protect domestic production, but they can also be applied to promote a protectionist country’s exports, in a mercantilist logic. The same also goes for extra-territorial measures that, at least theoretically, can also be used to interfere in competition and promote one’s own exports.
What is their potential impact?
As regards a country’s size, ordinary sanctions can principally be applied by any country, small or large; the more or the larger the countries are that apply them, the more economic impact they will have. The most recent example, of large dimensions of course, are the reciprocal sanctions of the currently escalating US-China trade war.
Extraterritorial sanctions only make economic sense for really large, powerful players, because such sanctions are simultaneously directed against economic interests and relationships of a number of countries and may give rise to serious irritations internationally. The powerful player A needs to have the economic and financial clout to persuade or else compel third countries or their enterprises to (partially) cut off their economic relationship with sanctioned country B and thus harm themselves or else face even greater harm thru punitive measures. At the same time, if a relatively large country is sanctioned, this may also negatively affect the global economy, including feedback loops for the sanctioning country. If this weapon of economic warfare is repeatedly imposed and international irritations increase, it could seriously endanger the integrity of the international trading and financial system. Today, unfortunately there are occasional signs that some countries perceive the need to shield their trade from extraterritorial sanctions as is the case with the establishment by the European Union of a Special Purpose Vehicle (SPV) to protect European enterprises trading with Iran from possible US secondary restrictions after the United States’ unilateral exit from the Iran Nuclear Accord. Needless to say that in all above cases and above all, it is the multilateral institutions designed to safeguard and uphold the free flow of trade and investment, notably the World Trade Organization (WTO), that stand to lose credibility by appearing irrelevant.
Possible geopolitical consequences and drawbacks
Somewhat less dramatic consequences of the proliferation of sanctions have already shown up; they potentially include companies’/or countries’ “de-globalization”, as pointed out by Dmitry Trenin, Director of the Carnegie Moscow Center. Thus, as in some cases, companies may be increasingly forced to think of themselves as tied to their home governments, they will think twice before investing in certain markets abroad. Other consequences include changes in traditional foreign trade patterns in line with geopolitical re-alignments. Faced in 2006 with the Russian wine embargo, Georgia had to look for new markets in the West, where it was heading politically. When in 2014, Russia faced Western sanctions, it accelerated its pivot to China, a major power that refused to condemn its actions and shared Moscow’s opposition to US global dominance.
While applying sanctions tends to be a double-edged sword – e.g. US energy giants, unlike their Chinese and French counterparts, are not participating in huge energy projects in Russia – the overall economic impact of these campaigns is usually not a zero-sum game. The stronger economy can inflict more damage on the target economy than it will sustain in return, but that may not necessarily be sufficient to alter the political behavior of the government to be “punished”. Sometimes sanctions may even contribute to propping up domestic political support for a beleaguered country’s government, whether autocratic or not. – Now, if we very briefly look at five sanctioned countries (one of them no longer sanctioned today), namely Iraq, Iran, North Korea, Cuba and Russia: while economic hardship inflicted by sanctions in some cases appears to have been substantial, and lasted over several decades, the politically intended change of behavior has been quite modest, as far as detectable. In case of Russia, the only case I really know somewhat better, estimates of economists put the impact of the sanctions from late 2014 (not to be confused with the impact of the simultaneous oil price plunge) at roughly 0.5% to 1% of lost GDP growth on average p.a., whereby the negative impact on investment may have been most perceptible. Ironically, the true beneficiary (at least in the case of ordinary sanctions) may often be a third party that jumps into the opening: e.g. Russia in the case of post-Tiananmen Western sanctions on China, Turkey in the situation when EU pressure made Russia abandon its South Stream gas pipeline project (late 2014), China in the case of current Western sanctions against Russia (from late 2014).
Why are sanctions still relatively popular with governments?
A reason why (economic) sanctions are still relatively popular among sanctioning governments as a tool, despite the fact that in most cases they do not promise to achieve their officially intended political goal, may be that they can be seen as a clear symbolic message of expressing disapproval with a sanctioned country’s behavior. There may be a moral value in sanctions. Imposing sanctions is also much less risky than launching a military intervention or risking a war, the cost of which would of course be prohibitive if the adversary is a nuclear power. Given also that some key Western societies appear to be increasingly inward-looking, affected by rising inequality and an upswing of populism – the appetite for the projection of military force may be less developed today, also taking into account the very expensive military experiences accumulated in the last two decades in the Middle East.
How can we overcome sanctions and related conflicts? Very difficult, but I would argue that all sides would have to try to find compromises or contribute to finding compromises in order to get out of this impasse. We really urgently need to get back to and revive multilateralism.
