Financial History 142 Summer 2022 - Page 17

2 . Autocrats facing sanctions can rely on other autocratic regimes ;
3 . Personalist regimes — or those that are essentially one-man rule with a high concentration of power in the hands of one leader with the military and party apparatus severely limited under his power — are the most vulnerable ;
4 . Sanctions applied to aggressor states during a conflict may impact that state ’ s military effectiveness .
Clearly , points one and two apply to Russia ; in fact , Russia has reported that trade with China and a variety of other nations had increased 38 % since the postinvasion sanctions landed . And owing to a requirement that “ unfriendly ” nations purchase oil in ruble-denominated transactions , the Russian currency is actually stronger now than before the February invasion : after spiking from 70 to 140 rubles per dollar in early March 2021 , the ruble now trades at about 55 rubles per dollar . Point three also describes the political regime in Russia quite precisely , yet the proposed vulnerability has not yet materialized . So too with point four . Clearly the military effectiveness of Russian forces have been more impacted by NATO ’ s unprecedented arming of Ukranian forces . But the most important point made by UW Law is the following .
5 . Sanctions work best when the target state is economically weak and , in some way , dependent upon the sanctioning state .
And there , as Hamlet said , is the rub . Russia ’ s economy is quite small — roughly the size of Texas ’ economy — but it is a major exporter of oil , natural gas and wheat , thus a global commodity powerhouse . Political concerns , in particular mounting inflation , have led Western powers to exempt certain energy-proximate Russian financial institutions from the SWIFT ban . ( In the sanctions literature , these exemptions are known as “ carve outs .”) So , while Russia is dependent upon the rest of the world for machinery and industrial products , the world is far more reliant upon it for oil and grain .
Moreover , with inflation and conflictdriven shortages pushing prices to levels not seen in over a decade , crude alone is generating revenue for Russia climbing into the hundreds of billions of dollars annually , which provides some insulation against the raft of sanctions arrayed against it . There are ongoing discussions about capping the prices paid to Russia , and the EU plans to ban Russian oil imports completely on December 5 , 2022 , but politically and economically the situation remains fluid .
Conclusion
This leads to the most important question of all : why , with such a mediocre record and predisposition for generating unintended consequences , are sanctions so readily deployed ? There are several reasons . First , because — at least initially — the costs are low . And it ’ s important for political leaders to appear decisive in the face of challenges . Doing something , anything , even with as tatty a record as imposing sanctions , tends to be preferred to inaction by voters and other political constituencies . Enacting punishing measures also signals to the international community that certain actions may not result in paratroopers descending upon airfields , but neither will they be overlooked .
But the most important reason why sanctions remain a key tool in the armamentarium of diplomacy is tied directly to their post-World War II efflux . In the wake of two horrifically destructive world wars , the idea of using political and economic measures as a substitute for military force remains a welcome one . The modern world is intricately interconnected and interdependent . On a chessboard dotted with nuclear powers , and in light of the lessons the Soviets learned in Afghanistan and the United States learned in Vietnam , even in nominally low intensity conflict the stakes are extraordinarily high . So even in the unlikely event that sanctions bring about the desired outcomes , let alone within a reasonable period of time , they remain an infinitely better option : more palatable politically , and vastly less costly than war . Peace is by far the preferable option , but the vicissitudes of international disputes may sometimes call for other solutions — albeit defective ones .
Peter C . Earle is a Research Fellow at the American Institute for Economic Research . He spent two decades as a trader and now focuses on financial markets , monetary policy and currencies . He is also a member of the Financial History editorial board .
Sources
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Felbermayr , Gabriel , Constantinos Syropoulos , Erdal Yalcin and Yoto V . Yotov . “ On the Effects of Sanctions on Trade and Welfare : New Evidence Based on Structural Gravity and a New Database .” 2019 .
Felbermayr , Gabriel , Aleksandra Kirilakha , Constantinos Syropoulos , Erdal Yalcin and Yoto V . Yotov . “ The Global Sanctions Database .” European Economic Review , 129 , p . 103561 . 2020 .
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Lindstaedt , Natasha M ., David M . Trubek and Bojan Bugaric . “ Sanctions and the Ukraine : What Can We Learn from the Literature ?” University of Wisconsin Legal Studies Research Paper ( 1745 ). 2022 .
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Özdamar , Özgur and Evgeniia Shahin . Consequences of economic sanctions : The state of the art and paths forward . International Studies Review , 23 ( 4 ). pp . 1646 – 1671 . 2021 .
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https :// 2017-2021 . state . gov / iran-sanctions / index . html
https :// www . state . gov / democratic-peoples -republic-of-korea-sanctions /
https :// www . state . gov / cuba-sanctions /
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