Embargoes imposed on countries are a tool of aggression, avoiding military confrontation. When diplomacy and persuasion have failed, there’s not much else one can do short of war. Hence the popularity of sanctions across the political spectrum and their snowballing proliferation.
The US is, year by year, imposing ever more sanctions on individuals, companies and countries, despite the diminishing efficacy of sanctions and their cost in lost US exports, lost jobs and loss of GDP.
Secondary sanctions, the punishment meted out beyond US jurisdiction, is costing goodwill, undermining the role of US dollar as a means of payment, while the US is seen by their partners, friends and allies increasingly in an unfavourable light.
“A nation that is boycotted is a nation that is in sight of surrender,” crowed US president Woodrow Wilson, a great believer of sanctions. In the 100 years which have passed since, and more so in the 80 years since WWII, economic sanctions imposed by the US, Europe and others have steadily increased in numbers while steadily becoming less effective, except those imposed by China.
There are four reasons for that. Firstly, in a globalised world, the US is not the dominating economic force it had been in the first half of the 20th century. The US does not account for much more than 8.5 per cent of global exports today. Also, Europe’s weight in world trade has diminished over time and global interdependence grown. Secondly, the tool of sanctions is increasingly used for problems it cannot fix. Thirdly, sanctions are never questioned, redesigned or lifted, even after decades of fruitless imposition. See Cuba. Fourthly, evasion has become more effective.
In a speech given to the US House of Representatives in 1997, Kimberly Ann Elliott, researcher at the Peterson Institute for International Economics, presented a set of historical data on sanction efficacy. She came to the sobering conclusion that unilateral sanctions imposed by the US since 1970 had achieved their declared foreign policy goals in only 13 per cent of all cases.
Her analysis listed contributing factors for a positive outcome: 1) a modest goal; 2) effective, multilateral cooperation; 3) targeting a country with a much smaller economy and a feeble regime; 4) a prior friendly relationship; 5) substantial trade between sanctioning and sanctioned country; 6) a quick, decisive implementation of sanctions; 7) avoiding high costs for the sanctioning country. Her lecture seems to have fallen on deaf ears.
I was in Azerbaijan in the late 1980s when the war with Armenia over Nagorno-Karabakh erupted. It ended in 1994 with a total Armenian victory. It conquered the enclave which in Soviet times was under Azeri administration. The Armenians at the time had the traditional support of Russia, viewing it as a bulwark against Turkey and a check against a possibly too-independent, Muslim, oil exporter.
But the Russians had no troops on the ground, supplying only ordnance and logistics. The sole supplier of fuel to Armenia was Azerbaijan itself. Would it have seized doing so, Armenia’s attack would have stopped in its tracks. This was a clear case where a decisive embargo would have effectively changed the outcome of a conflict.
What puzzles me most is the stubborn pursuit of a strategy which has amply demonstrated its failure. We embargo North Korea and Iran to lessen their belligerence and to induce regime change. Crippling sanctions against North Korea have been in place since 1950 and against the Islamic Republic since 1979. In both countries, the regimes have been cemented firmly while the population is condemned to malnutrition, a lack of adequate medication and a life in poverty.
The sanctions have nothing to show for, but we enthusiastically keep them in place. If anything, they bring about the opposite of the desired effect. North Korea understands that it will be treated differently as a nuclear power. Hence the regime’s steadfast perseverance. And the poverty imposed on the country became the tool to rule it. The quasi-feudal state has enslaved half of the population to instil a sense of privilege in the other half. The Kim’s family regime remains anything but unstable.
Elliott’s checklist how to implement sanctions with a higher chance of success was clearly not at hand when we tried to force peace on invading Russia with a set of massive sanctions on a scale never attempted before. They were shocking in scope and reach, but not serious enough as it turned out.
1) The goal, to force peace on a major oil and gas exporter, with a permanent seat on the UN security council and the biggest stockpile of nuclear weapons on Earth was anything but modest.
Strategically, Russia has become the indispensable ally of China- Andreas Weitzer
2) The US gathered an impressive count of participants – the top of the industrialised wealth from Canada to Australia, from Europe to Japan. But, at the end of the day, it was only half of the world, with South America, Africa, the Middle East, India, China, Turkey, Serbia, and the Indian subcontinent staying on the sidelines or even actively supporting Russia. China is now Russia’s biggest trading partner with a trade volume of $200 billion. India has increased its oil imports from Russia from two per cent to 35 per cent.
3) The targeted country, Russia, was anything but small and weak, and was, for more than 30 years since its inception as the successor to the Soviet Union, continuously denied a friendly relationship with the West, despite demonstrated interest. The war has given Putin another pretext to rule brutally, oppressing any opposition.
4) Russia’s trade with the US, the main instigator of most sanction tools, was insignificant and therefore not much of a threat to Russia. The lost trade with Europe was admittedly large and has badly damaged Gasprom, the main supplier of natural gas to Europe. This was costly for Europe (“avoiding high costs as a sanctioning country”), while a boon for the US, which for the first time in history became a major EU gas supplier.
5) The first wave of sanctions came fast and was so damaging, that, only a few months into the war, the Russian economy wobbled and the rouble tanked. In combination with the initial, almost ridiculous failure of the Russian armed forces, it would have provided a window for satisfactory settlement. Yet the policy goals widened in the eye of initial success instead of zooming in on the achievable.
The sanctions have run their course now. They have no effect anymore. Russia’s war economy is in rude health and its fossil fuel exports are raking in money month after month far exceeding the state’s frozen assets abroad. Strategically, Russia has become the indispensable ally of China and its raw materials and energy larder. We still insist on sanctions which have proven to have negative effects, like a visa ban on Russian citizens and the sanctioning of westernised oligarchs. We even insisted to ban Russia honouring its foreign debt.
Wouldn’t it be better if Russia paid us some of its latest gains, and that we’d welcome everyone eager to run away from Putin’s regime? What we refuse to admit is that we never really wanted to sanction Russia’s oil. The impact of a major supplier taken off-line would have been too costly for all.
Before we continue to tighten the sanctions screw now on China further and further, without any chance of success, yet heightening the risk of a violent confrontation, I’d hope that someone will remember Elliott’s checklist from 1997. Retail investors should carefully examine the China-dependency of export champions.
Andreas Weitzer is an independent journalist based in Malta.
The purpose of this column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice, or advice on the buying and selling of financial products.
andreas.weitzer@timesofmalta.com