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Sanctions always come with a cost

Jonathan Eyal |

It passed with just a nod from those present, and the international media barely noticed the event. But the recent decision of European Union foreign ministers to renew their comprehensive economic sanctions on Russia until at least January next year is symptomatic of a more profound development in international affairs: the often careless expansion of economic sanctions as the preferred weapon of choice for governments.

That&’s not only a Western phenomenon. China, which frequently denounces the use of economic sanctions as a “violation” of the principles of peaceful coexistence, is quick to freeze trade relations with any country which admits the Dalai Lama, awards a prize to a Chinese dissident or dares oppose Chinese territorial claims: Just ask the Norwegians, Filipinos or Japanese on this matter.

And although it now denounces the Western sanctions to which it is subjected as “illegal and aggressive”, Russia has never hesitated to impose similar sanctions on its neighbours, whenever it thought this appropriate.

So, when it comes to the political use of economic measures, the world is not divided just between saints and sinners.

Still, there is no doubt that it&’s in the West where sanctions are now considered as a key foreign policy tool.

The US operates no less than 24 different sanction regimes against a variety of countries, and also against particular companies or specific business sectors. The Europeans target fewer entities, but resort to sanctions just as frequently, albeit for shorter periods of time.

Either way, sanctions are seen by Western governments as “the drones of the future – highly targeted weapons that can be deployed to devastating effects”, as Mr Mark Leonard, who runs the European Council on Foreign Relations, a London-based think- tank, recently put it.

Ironically, this century began with Western governments dismissing sanctions as ineffectual tools, far too blunt to achieve their purpose, far too slow in producing tangible results. The “bloqueo”, as the blockade which the US imposed on Cuba since 1960 is known, has done nothing to dent the island&’s communist regime&’s hold on power.

And sanctions merely entrenched the rule of Iraqi leader Saddam Hussein; one of the main considerations which persuaded President George W. Bush to order the invasion of Iraq in 2003 was the belief that sanctions were merely a weak alternative to the exercise of “real” power.

So, why are sanctions back in fashion? Partly because of the disenchantment with the use of force, now felt in most Western countries. The reluctance to put “boots on the ground” in any conflict naturally pushes governments towards the adoption of sanctions; it was noticeable, for instance, that literally hours after Russian troops crossed into Ukrainian land, sanctions were mentioned as the immediate response by every Western government. But the most important reason for the growth in the imposition of sanctions is that, despite their relative decline, Western governments still have a huge influence over the world&’s economy: the European Union, the US and Japan, which often see eye to eye on the handling of international crises and frequently coordinate their sanction regimes, still account for just over half of the world&’s economy, and around 75 per cent of global investment flows.

That means not only that they have the ability to use the weapon of economic sanctions, but also that they can often do so in the knowledge that the damage they inflict on their opponents is likely to be far greater than the damage they would suffer.

And the growing globalisation of financial markets has only increased the West&’s ability to impose sanctions.

Once a country or even a specific financial institution is sanctioned by the US, any bank around the world rushes to comply with the sanctions, even if it is not legally obliged to do so, for the simple reason that if it ignored the US sanctions it could end up being excluded from trading on US territory.

That, and not the actual scope of the restrictions, is the main reason the sanctions on Russia, which have been progressively tightened since April last year, have inflicted real damage on the country&’s economy.

As Mr Juan Zarante, a senior former Bush administration official who created the new sanctions regime and published a book on this subject, pointed out, America&’s new weapon “does not come from the classic trade-based sanction or law, nor did it derive from UN sanctions resolutions. Instead, it came from the sheer domination which the US exercises over the global financial system”.

America&’s ability to influence Swift, the global system which is the backbone of financial transactions between all banks, is even more significant.

Just ask the Iranians, who thought that they may be able to evade US-imposed trade sanctions by selling their oil cheaply to China and India, only to discover that, even if they found willing buyers, they could not get paid, unless they were prepared to carry banknotes in suitcases across borders.

But the West should be wary of using such weapons too frequently. The more the US abuses its dominance of global finance, particularly the global payment systems of credit cards such as Visa and MasterCard, or banking communication systems such as Swift, the more the pressure will grow to establish parallel financial structures outside US control.

Russia and China have frequently discussed establishing a system to rival Swift and, although this is easier said than done (such a system requires convertible currencies and a huge investment in infrastructure), Moscow and Beijing can accomplish it, if they are really determined.

Furthermore, sanctions are imposed too quickly and too frivolously: Demands to cut Russia out of global payment systems were made in the West immediately after the Ukraine crisis erupted last year, although few Western politicians seemed to have realised that this would have led to the complete paralysis of the Russian economy, and would have been regarded by the Russian government as tantamount to an actual declaration of war.

Sanctions are also kept for far too long. The EU ban on the sale of weapons and military technology to China, for instance, has been in place for over a quarter of a century, notwithstanding the fact that the circumstances which had led to its initial imposition have long changed.

And, incredibly, the US kept a financial sanction – which it initially imposed on the Soviet Union in 1975 because of the country&’s violation of human rights – for no less than a decade after the Soviet Union itself ceased to exist.

More importantly, by abusing their dominance of the global economy through the imposition of various sanctions and threat of penalties in order to force global payment systems to shun certain countries, the US and its European allies may end up tearing apart the global economy we have today: The world may be facing what US strategist Edward Luttwak described as “geo-economics”, namely “the admixture of the logic of conflict and the methods of commerce”.

Or, to put it differently, the countries which have presided over and encouraged the globalisation of the world economy may unwittingly be tearing their achievement apart.

None of this is to suggest that sanctions should never be used. Nor is there much debate that Russia&’s behaviour in Ukraine, or Iran&’s defiance of the international community and the UN Security Council resolutions, required a response.

Still, Western governments should disabuse themselves of the idea that sanctions are either omnipotent or cost-free; at the very least, the imposition of sanctions on any nation, and particularly on a big power like Russia, should require more careful scrutiny than it currently gets.

For although economic sanctions remain a useful alternative to the outright use of force, they should not become the first resort for governments which are either too intellectually lazy or too preoccupied by other matters to think of policy alternatives.

The Straits Times/ANN.