Can US economic sanctions still work in a multipolar world?

Sanctions have rarely succeeded in deterring authoritarian regimes; instead, they lead to increased economic hardship among ordinary people
Today, shifting global alliances are weakening the effect of Western sanctions as targeted states like Russia and Iran form new ties

Sameed Basha

Published: 1:30am, 17 Aug, 2022

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The shift in global alliances is bringing together countries like Iran and Russia, two pariah states that have borne the brunt of US-led sanctions and criticism for many decades. They present an ever-growing axis of countries flaunting transgressions against the declining influence of the United States. With more sanctions on the way for Russia, do US economic sanctions work, or are they a toothless endeavour?

The failure rate of sanctions is anything from 65 per cent to 95 per cent, according to one 2015 study, with the by-product being a degradation of human rights within the targeted country. Governments or regimes can use sanctions to rally nationalist support, and if there is a lack of democratic process within the country, as in the case of Iran and Russia, the public has little say and few alternatives.

Sanctions targeting Russia after it annexed Crimea failed to deter Moscow from its offensive in Ukraine. Instead, they helped unify the country behind President Vladimir Putin, allowing him to eliminate leaders who opposed him, like Alexei Navalny, and entrap elites who did not share his opinion of the world.

Economic sanctions are the middle ground between diplomatic pressure and outright war. They can range from embargoes and asset freezing to targeting individuals’ movement and finances. Often, they do not affect the government as much as they put pressure on the public, strangling them with inflation and burdening them fiscally in the hopes of triggering political reform through civil dissent.

People pass a currency exchange office with a screen displaying the exchange rate of the US dollar in St. Petersburg, Russia, on August 8. Photo: EPA-EFE

The impact of US sanctions can vary; historically, countries that are in geographic proximity to the US are affected more than those further away. However, on average, US sanctions cut a targeted state’s annual GDP growth by 0.75-1 percentage points. The impact on growth is limited to seven years, yielding a 13.4 per cent aggregated decline in GDP over that period.

In 2014, in the wake of the Crimea crisis, Russian Minister of Finance Anatoliy Siluanov said that Western sanctions would cause a loss of US$40 billion (or 2 per cent of GDP) to his country’s economy.

Still, sanctions by a single country, even when that country is the US, have limits. If the US divests from a target country, that is, through the exit of major brands like McDonald’s, Nike and Starbucks, others readily fill the void. This is what happened in Iran, which was first hit with US sanctions in 1979.

US company Conoco was to develop Iran’s Sirri oilfields, but had to cease operations due to sanctions. But not all US allies followed suit. TotalEnergies (formerly Total Oil Petroleum), with the backing of the French government, took over operations and established the facility instead. Similarly, in Russia, TotalEnergies is continuing operations, despite BP, Shell and ExxonMobil leaving the country.

On the other hand, sanctions by the UN Security Council are far more effective, as all member states are required to adopt resolutions. The effectiveness is further enhanced if the resolution is supported by all members of the council.

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Ukraine, Russian envoys in tense exchange at UN Security Council emergency meeting

UN-backed sanctions typically cause a state’s real GDP growth rate to fall by more than 2 percentage points a year, with the effects decreasing over a period of 10 years. During this period, the total decline in the sanctioned country’s per capita GDP growth rate is around 25.5 per cent.

On rare occasions, sanctions will amount to a complete blockage, as in Rhodesia (Zimbabwe) and the former Republic of Yugoslavia (the region now comprising Serbia and Montenegro).

Today, diverging global interests are taking power away from the Security Council, with conflict resolutions taking place instead via regional power blocs or third parties – for example, Pakistan brokering a peace deal between the US and the Taliban, ending an 18-year war without the consensus of UN General Assembly.

Russia, one of the key members of the Security Council, has vetoed and blocked resolutions tabled against it, with the likes of China (for reasons of self-interest) abstaining from voting and blocking any meaningful action, as witnessed during the emergency session of the General Assembly in March.

Putin’s trip to Iran is perhaps the latest sign of the declining unipolar status of the US and its inability to isolate nations. Since the invasion of Iraq in 2003, Iran has become increasingly assertive in the region, eclipsing Saudi Arabia in its battle for regional supremacy and taking on the US in Libya, Syria, Southern Lebanon and Yemen.

Whether West’s sanctions on Russia are working is only part of the question

It has considerable influence over Iraq’s government, prevented Israel from invading South Lebanon, and bullies countries of the Gulf Cooperation Council by supporting groups like Yemen’s Houthis. Russia, too, has extended its influence in the region by backing the Assad regime in Syria. Its annexing of Crimea served as a litmus test to gauge the reaction of the international community.

The symbolic nature of US sanctions failed to prevent the invasion of Ukraine and set a precedent for other emerging powers like China, which will be carefully observing the West’s treatment of Russia as it pursues its national interests regarding Taiwan.

Sameed Basha is a defence and political analyst with a master’s degree in international relations from Deakin University, Australia