Are Economic Sanctions Effective Foreign Policy Tools?

They are increasingly used to try to change foreign governments’ policies and actions, often with unintended consequences

This article was originally published on Econofacta non-partisan publication designed to bring key facts and incisive analysis to the national debate on economic and social policies. EconoFact is overseen by Michael Klein, a professor of international economics at The Fletcher School.

The Issue

There is a long history of the U.S. using economic incentives and penalties to change another country’s behavior and to further American foreign policy goals. The use of one type of penalty, economic sanctions, has surged in recent decades, increasing over nine-fold between 2000 and 2021. 

As sanctions emerge as a tool of first resort in addressing a range of national security, foreign policy, and economic threats, it is important to assess the evidence regarding their effectiveness, and to understand the conditions under which they are more likely to succeed.

The Facts

Economic sanctions often aim to coerce governments into changing policy or behavior. Sanctions imposed by the United States rely on the global importance and weight of U.S. financial institutions, the U.S. dollar, and the U.S. economy. Imposing sanctions, or even a threat to do so, may disrupt market activities in ways that induce targeted governments to take actions they would not otherwise undertake. 

A notable instance of sanctions contributing towards a change in policy was in the build-up to the 1991 Madrid Peace Conference, a multilateral summit aimed at reviving the Israel-Palestine peace process. 

The U.S. withheld approximately $3 billion in loan guarantees to Israel, demanding that the Shamir government attend the conference. Israel, which needed the loan guarantees to expand housing settlements in the occupied territories in the West Bank, eventually agreed to attend the summit, which ultimately paved the way for the Oslo Peace Accords.

But sanctions can also be imposed without the sanctioning country making any demands. Typically these economic restrictions aim to maintain strategic and technological advantages over rival nations. Notable examples include the CoCom embargo that NATO allies imposed on the Soviet Union beginning in the late 1940s, to restrict technology exports, and more recently, the U.S.-led semiconductor export controls on China, that Japan and the Netherlands have signed on to.

Sanctions can also serve as a deterrent, and to enforce norms. Even if sanctions against a country engaging in human rights abuses, nuclear proliferation, or territorial aggression aren’t expected to alter the target country’s behavior, they can prove useful in signaling the cost other countries might have to incur if they violate the norms a sanctioning country cares about. 

For instance, in excluding Russian banks from the SWIFT payment system, the expectation wasn’t necessarily that Russia would withdraw from Ukraine. Still, while aiming to exact a heavy price and weaken the Russian economy, the sanctions also served as a signal to other countries contemplating land grabs that Moscow has been forced to pay a reasonably high price for its actions, potentially deterring third parties contemplating similar moves.

About a third of sanctions imposed over past decades can be labelled effective. Estimating the effectiveness of sanctions can be challenging since the threat of sanctions is very often made away from the public eye—and in some cases a threat in itself can have an effect without actual sanctions having to be imposed. 

The fact that sanctions are at times imposed without any demand also complicates determining whether they have resulted in success or failure. Still, an analysis [PDF] of over 200 sanctions imposed between World War I and the early 2000s suggests that sanctions made at least “a modest contribution to a goal that was partly realized” 34% of the time. 

Sanctions that demanded modest policy changes tended to be more successful than those aiming at regime change or military impairment. 

Sanctions can be circumvented. Over time, countries can find ways to indigenously manufacture some sanctioned goods, thereby lessening their impact. Additionally, sanctions can be circumvented through third-party trade, with countries friendly to the sanctioned nation playing the role of a “black knight”—that is, serving as a substitute for both imports and exports from the countries that are sanctioning. 

As a recent example, Russia’s trade with the European Union fell by about 5% compared to the 2017-2021 average in the wake of sanctions imposed in response to its invasion of Ukraine. 

At the same time, there were spikes in trade between Russia and Armenia, Russia and the United Arab Emirates, Russia and Central Asian countries like Kazakhstan and Uzbekistan, and Russia and Hong Kong. Those countries also experienced increases in trade with Europe and the U.S.—strongly suggesting their role as third-party conduits for trade that is under penalty of direct sanctions.

Sanctions can lead to suffering among those not directly responsible for a government’s actions. Comprehensive sanctions, or embargoes which aim to restrict trade as much as possible, result in the most severe negative humanitarian externalities. 

But even targeted sanctions, which are typically imposed on top of more traditional sanctions, can cause the broader population significant harm in terms of health outcomes, a deterioration in governance, and even reduced lifespans. 

Such broad impacts have the potential to backfire, especially when the goal is regime change. As in the case of Cuba, Venezuela, and Iran, the negative socioeconomic impacts of broad-based sanctions arguably helped target governments shore-up support by giving them an external enemy against which to rally domestic audiences.

Sanctions can have unintended consequences. Sanctions that rely on blocking access to a resource or service under the sanctioning country’s control can weaken the sanctioning country’s monopoly on the resource, as rivals more proactively search for alternatives. 

Following its invasion of Ukraine, Russia attempted to weaken the European Union’s support for Ukraine by restricting access to Russian energy exports. Prior to the war, Europe was the largest importer of oil from Russia and Russian natural gas, which is used for home heating, power generation, and industry, and accounted for about 40% of the supply in Europe. 

The conflict, together with Russia’s use of the European Union’s energy dependence on Russia for leverage, have accelerated Europe’s diversification of energy sources away from Russia and created greater incentives for increasing investment in renewable sources of energy. Ultimately Europe’s efforts to gain energy independence from Russia could result in permanently diminishing this important source of funding for Moscow. 

Sanctions can become entrenched. Over time, domestic groups with vested interests in maintaining sanctions can emerge, making it hard for a sanctioning country to remove economic penalties even as goals are achieved, or as objectives change. 

The embargo against Cuba is a notable example. While regime change was an initial goal, over time, U.S. sugar manufacturers developed an interest in keeping the embargo in place, since that insulated them from competition from more efficient Cuban sugar producers.

What This Means

Sanctions should never be judged in isolation; policymakers often opt for economic sanctions not because they will always work but rather because they are viewed as superior to military statecraft or diplomatic censure. 

For political reasons, then, it seems likely that the use of sanctions will continue to rise—as will all the negative externalities that they create. 

Daniel Drezner is a Distinguished Professor at Tufts and professor of international politics at The Fletcher School. 

This story was co-written with EconoFact deputy managing editor Kailash K. Prasad, based on the EconoFact Chats podcast episode “Economic Sanctions as a Foreign Policy Tool”.

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