Sanctions

Financial Warfare

By | Updated Feb 6, 2017 4:23 PM UTC

When diplomacy failed, war used to be the next option, the continuation of politics by other means. Today, when persuasion doesn’t work, big powers often turn to economic combat as their first resort. Sanctions occupy a messy zone between condemnations and military strikes. Hard to organize and uncertain in impact, they can hurt innocent citizens and legitimate businesses. They tend to be more effective when a group of countries comes together to target an offending state. That, of course, requires agreement on who deserves punishing. A consensus among world powers to lift nuclear-related sanctions on Iran and between the U.S. and the European Union to maintain Ukraine-related penalties on Russia has been challenged by newly inaugurated U.S. President Donald Trump.

The Situation

Trump, who aims to improve U.S. relations with Russia, has proposed dropping sanctions against the country for its 2014 seizure of Crimea and support for separatists in eastern Ukraine. The U.S. and EU have kept the sanctions in place hoping to enforce the compliance of Russian-backed separatists in Ukraine with a ceasefire negotiated in February 2015. Russia, in return, banned the import of many food products from the EU. In his campaign, Trump also pledged to upend the 2015 agreement with Iran that released it from sanctions related to its nuclear program. Those measures succeeded in squeezing Iran’s economy and propelled its leaders to return to talks that produced a historic agreement with world powers limiting the country’s nuclear program. Trump has said he wants to renegotiate the deal, which would require the consent of Iran and the other six signatories. Alternatively, he could unilaterally re-impose sanctions the U.S. lifted. 

The Background

The first documented use of economic pressure for political ends dates to ancient Greece (the city-state of Megara banned trade with Athens in 432 B.C.). The U.S. Treasury first employed sanctions before the 1812 War against Britain. Woodrow Wilson was the first modern leader to promote financial pressure as an alternative to combat. Use of the tactic has grown dramatically this century. The United Nations had 13 sanctions programs in place in early 2017, two fewer than in 2015 when the number reached its highest level. The European Union regularly imposes its own sanctions. No modern nation has wielded economic weapons more than the U.S., which restricted imports, exports, investments and other financial transactions more than 110 times in the 20th century to try to change policies, end weapons programs or topple a government. The U.S. Treasury Department became a prominent national security player after the terrorist attacks of Sept. 11, 2001. Its self-described “guerrillas in gray suits” manage 26 sanctions programs that target governments, individuals, terrorist groups or criminal organizations in about two dozen countries. 

The Argument

Debate surrounding sanctions against Russia for its behavior in Ukraine shows how tricky they are to apply successfully. While the sanctions have little effect on the U.S., which has limited trade with Russia, within the EU some exporters are hurting. A few EU members, including Greece and Slovenia, have criticized the sanctions. So far the pressure has been insufficient to compel Russia to ensure its allies fully implement a 2015 Ukrainian peace accord. Democratic or quasi-democratic states that care about international opinion and rely on global trade and finance are likeliest to respond to sanctions, while isolated authoritarian regimes often don’t. A U.S. embargo against North Korea in place since 1950 has done little to change the regime or its policies. The most effective sanctions are crippling ones imposed by multiple countries; the global boycott of South Africa over its apartheid policy in the 1980s led to elections that ushered the black majority to power. The worst case of unintended consequences may be the U.S. oil embargo on Japan that unleashed a chain of events leading to the bombing of Pearl Harbor. Sanctions on Saddam Hussein’s Iraq were criticized as toothless, indiscriminate and corrupt; in retrospect, they were proven to have cut off funding for his weapons of mass destruction.

The Reference Shelf

  • history of sanctions published by Columbia International Affairs Online.
  • Foreign Policy magazine explains how “a blunt diplomatic tool” morphed into a “precision-guided” weapon.
  • Three economists assessed the effectiveness of sanctions in a 2009 book, “Economic Sanctions Reconsidered.” A table looks at cases since 1914; another covers post-2000 episodes.
  • Juan Zarate, a former Treasury official, describes how the U.S. used post-9/11 financial weapons against terrorists, criminals and rogue regimes in his book, “Treasury’s War.”

Indira Lakshmanan contributed to the original version of this article.

 

First published April 22, 2014

To contact the writer of this QuickTake:
Saleha Mohsin in Washington at smohsin2@bloomberg.net

To contact the editor responsible for this QuickTake:
Lisa Beyer at lbeyer3@bloomberg.net