US Restores Economic Sanctions On Iran, Again. But How Effective are Economic Sanctions?

“On July 7th, the United States government unilaterally moved to resume the Iranian sanctions policy in the finance, metals, minerals, automobiles and other non-energy related sectors . In early November, plans are that the Iranian oil industry is to be targeted and sanctions on other areas of economic activity will be reimposed as well.”
Picture Source: Iran Press
“Turkey has unequivocally refused to release Andrew C. Brunson, an American pastor in Turkey who was arrested on charges of espionage. He was one of some 50,000 arrested in the purges occurring during the aftermath of the 2016 Turkish coup d’état attempt. His treatment triggered the imposition of financial sanctions by the United States against two top government ministers who were involved in the arrest and detention of Pastor Brunson. The House and Senate also voted to stop the arms giant Lockheed Martin from selling its advanced F-35 stealth fighter to Turkey.“
“The United States Government has announced further economic sanctions upon the re-election of Venezuelan President Maduro. On the same day, President Trump signed an executive order prohibiting U.S. citizens and residents living in the United States from buying any claims related to Venezuelan state-owned enterprises, involving accounts receivable from Venezuela’s oil exports. The targets of the sanctions include Venezuelan government agencies as well as the state oil company (PDVSA).”
“Sanctions announced against some individuals and entities in Russia. Sanctions will be imposed on 7 Russian business leaders and 12 companies owned or controlled by them, 17 senior Russian officials, a Russian state-owned arms importer and exporter and their banks. The U.S. State Department said Wednesday that the new sanctions would go into effect on August 22nd. The aim is to deny Russian state-owned and state-funded enterprises access to any national-security-sensitive goods and technologies originating from the U.S.”

Almost every day we hear about such news: with the United States again imposing economic sanctions on yet another country. Just what are economic sanctions? The so-called economic sanctions refer to the use of non-military coercive measures other than severed diplomatic relations. It is generally considered that the financial, trade and other areas of sanctions are economic sanctions. In general, common practices include the imposition of trade embargoes, the interruption of economic cooperation, and the cutting off of economic or technical assistance.

The United States economic sanctions regime is very complex and has a large number of targets. These can be grouped into specific countries, specific industries or goods, and specific individuals or entities. In general, we can refer to three types of sanctions. American economic sanctions can be broadly defined and divided into comprehensive, industry and goods, and targeted sanctions.

Sanctions: War by other means — Picture Source: Financial Times

Let us now take a look into the characteristics of these three types of sanctions:

1. Comprehensive sanctions

Comprehensive sanctions refer to the total trade restrictions imposed by the United States Government on specific countries. This means that, without special permission or exemption, individuals and enterprises of the United States are not allowed to carry out any business related to the sanctioned country, The United States, operating mainly through its banking system, also needs to freeze the government assets of the sanctioned countries. At present, the United States has imposed comprehensive sanctions on Iran, Cuba, Sudan, Syria, and North Korea with other countries subject to limited or regime-based sanctions. On July 12, 2017, the U.S. government lifted comprehensive sanctions against Sudan, according to executive order 13761, issued before Obama left office. In addition, the United States government also imposed a comprehensive trade embargo on Crimea after its annexation into Russia.

While imposing comprehensive sanctions on all these different countries, there are certain commonalities: first, the United States government defines “countries that support terrorism” (state sponsor of terrorism). Iran, Syria and Sudan are still on the list of “countries that support terrorism”. North Korea and Cuba were removed from the list in 2008 and 2015 respectively. Second, the governments of those countries are or have been hostile to the United States Government; third, Iran, North Korea and Syria are among the main targets of the United States Government to prevent the proliferation of weapons of mass destruction, which is one of the foreign policy priorities of the United States.

2. Industry or goods sanctions

In addition to comprehensive sanctions, the United States Government has imposed trade or goods sanctions on some countries. These come into play at two levels: first, export controls which place restrictions on the export of specific products and technologies of the United States. These are mainly implemented by the Bureau of Industry and Security (BIS) of the Department of Commerce and the US State Department. The US Department of Commerce’s BIS takes responsibility for the export control of dual-use goods and technologies, while the US State Department is responsible for the export control of military products and technologies.

The second is import restrictions, which are specifically enforced by the US Treasury Department’s Office of Foreign Assets Control (OFAC). The import restrictions imposed by the OFAC are mainly aimed at the pillar industries of the countries concerned and act to restrict their access to the United States market. For example, the export restrictions imposed by the OFAC prohibiting Americans from importing jadeite and ruby from Myanmar are targeted mainly at products or technologies that are urgently needed in the countries concerned. Another such example is the ban on American companies which prohibits their providing products and services for some of Russia’s oil development. There is a certain overlap between the export controls of the Department of Commerce, the State Department and the import and export restrictions placed by the United States Treasury. The Chinese company, ZTE, for example, shipped US products to Iran without permission and was fined by BIS for violating US export regulations, by OFAC for violating Iranian Transactions and Sanctions regulations and by the US Treasury’s Export Administration Regulations. This subjected them to a very heavy penalty of some $1.4 billion, pledges to change its management and provide other “high-level security guarantees.”

3. Targeted sanctions

Targeted sanctions directly target specific individuals or entities that harm the national interests of the United States by including them on various sanctions lists in order to achieve precision strikes and thus avoid accidental injury. At present, the main implementing agencies of this US economic sanctions policy are the US State Department, the Treasury Department and the Department of Commerce, all of which have issued sanctions lists. The US State Department has also issued a list of individuals and entities that violate the policy of non-proliferation of weapons of mass destruction.

The Treasury Department released the Specially Designated Nationals and Blocked Persons (SDN) List and the Consolidated Sanctions List, while the Department of Commerce released the Entity List, Denied Persons List and Unverified List. The United States Government has adopted different sanctions against individuals or entities on the list. For example, for individuals or entities on the SDN List, Americans are not allowed to do any business with them without permission and must freeze their US-held assets.

The United States Government has imposed sub-sanctions on non-Americans to carry out operations related to Iranian individuals or entities on the SDN List. According to this specific legislation, Americans are prohibited from carrying out any business with individuals or entities on the Foreign Sanctions Evaders (FSE) List without permission (but there is no need to freeze their assets). For Iranian individuals and entities on the 13599 list, Americans are not allowed to do any business with them without permission and must freeze their assets. However, the United States Government does not impose secondary sanctions on non-Americans conducting operations related to Iranian individuals or entities on the 13599 list.

In today’s world, the process of global economic integration is speeding up, and the economies of different countries are becoming more defined by inter-penetration and inter-dependence. Economic sanctions can carry out a “precision strike” against countries that have integrated into the global economy. But economic sanctions can also have an impact on the economies of the United States and its allies. Allies and non-Allies can resist unilaterally imposed US policies. United States’ economic sanctions against Iran have been boycotted by the UK, France and Germany — not to mention Russia, China and India.

Historically, economic sanctions have often been ineffective. The US economic sanctions against Cuba failed after 50 years and the economic sanctions against North Korea and Iran did not change the foreign policy of those two countries. The long-term financial sanctions against Russia in 1998 led to a major earthquake in Russia’s financial markets. But it also, at the same time, caused a huge impact on global financial markets. Even in the so-called success stories of economic sanctions, such as the Soviet Union’s collapse, the elimination of apartheid in South Africa and the demise of the Iraqi dictatorship, there were arguably much weight that added from the economic sanctions?

Then why do economic sanctions often end in failure?

  1. In many cases, they help autocrats rally their citizens against a common enemy. The starting point of sanctions is that economic sanctions will lead to the deterioration of the national economy and act to stimulate internal contractions. But often the opposite is true. Cuba is a good example, because early on, the United States and the former Soviet Union agreed not to invade Cuba. A dozen or so changes in the administrations of the United States later, and Cuba’s autocratic government still has not collapsed, despite decades of economic sanction policy.
Picture Source:Bulawayo24

2. Economic sanctions have often led to a thriving black market. Economic sanctions do not affect unofficial market operations, or what we call the black market. Because of trade restrictions and shortages of goods, the prices of smuggled goods are often very high, leading more smuggling groups to take risks in exchange for high profits.

3. Economic sanctions can have a dramatic side effect that could worsen the overall situation in the targeted country. Dictatorship, crimes against humanity, terrorism and the development of nuclear weapons are among the main reasons for economic sanctions, with the political errors of the ruling government leading to international sanctions. In reality, however, economic sanctions are more likely to pass the pain on to the innocent citizens in the targeted countries, resulting in factory closures, rising unemployment, sharp reductions in investment, high prices and shortages of food and vital medicines.

4. Disputes over the interests of the sanctioned State and its neighbors are often greater than those of the sanctioning State. For a variety of reasons, many sanctioned countries tend to lack economic contact with developed countries issuing sanctions, leading to economic sanctions that do not strike their core economic pillars quickly.

On the contrary, the sanctioned countries and their neighboring countries have more common trade and political interests. For example, when economic sanctions had little effect, President Trump hinted at military action against North Korea. South Korea has protested against the use of force and even provided millions of dollars in humanitarian aid. The reason is clear, because in the event of a war on the Korean peninsula, South Koreans must be the first to suffer.

In that case, why do Western countries, led by the United States, continue to impose economic sanctions on some countries? Firstly, they cannot afford to ignore the extreme regimes of some countries, and second, because of their political and strategic interests. Last but not least, the economic and social upheavals brought about by modern warfare are even worse.

Picture Source:Seven Pillars Institute

For these reasons, many feel that the only viable option is imposing economic sanctions. But in the global connectivity of today, countries, industries, companies and individuals are all inextricably linked, and the target country experiences a series of economic impacts that often spill across borders, making sanctions a poor tool for effecting the desired changes.

Is there a better way? Perhaps political dialogue and trade communication should first be exhaustedly explored before sanctions are imposed.

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