Sanctions as Economics

Economic sanctions are one of the most-used foreign policy tools of the 21st century. The US alone maintains sanctions programs against over 30 countries. They sit at the intersection of trade and security.

How Trade Sanctions Work

Import bans — Prohibiting purchase of goods from a sanctioned country. The EU's ban on Russian oil (2022) aimed to cut Russia's main revenue source.

Export controls — Blocking sale of goods TO a sanctioned country. US restrictions on advanced semiconductor equipment to China (October 2022) aim to slow China's AI and military development.

Asset freezes — Freezing bank accounts and property of sanctioned individuals/entities. Over $300 billion in Russian central bank reserves were frozen in 2022.

SWIFT disconnection — Cutting banks off from the global financial messaging system. Applied to Iranian banks (2012, 2018) and Russian banks (2022).

Secondary sanctions — Penalizing THIRD countries' companies that do business with the sanctioned country. The US threatens European companies with penalties if they trade with Iran.

The Effectiveness Debate

Iran: Sanctions devastated Iran's economy — inflation hit 50%+, oil exports dropped 80%, and GDP contracted sharply. Iran came to the negotiating table for the 2015 nuclear deal (JCPOA). But after the US withdrew from the deal (2018) and reimposed sanctions, Iran accelerated enrichment. Sanctions brought Iran to negotiate but didn't permanently resolve the nuclear issue.

Russia (post-2022): The most comprehensive sanctions ever imposed on a major economy. Results:

• Russia's economy contracted ~2% in 2022, less than the predicted 10-15%
• Oil revenues declined but recovered as Russia rerouted exports to India and China
• Russian central bank adapted with capital controls
• European economies also suffered from energy price spikes
• The war continued despite sanctions

Key lesson: Sanctions are better at imposing costs than changing behavior. They work best when demands are limited and achievable, the target is economically vulnerable, and the sanctioning coalition is broad.

Worked Example: The Russian Oil Price Cap

In December 2022, the G7 and EU set a $60-per-barrel cap on seaborne Russian crude: Western firms could ship, insure, or finance the oil only if it sold at or below $60.

The design tried to thread a needle — keep Russian oil flowing (to avoid a global price spike) while shrinking Russia's revenue per barrel.

That is roughly a $60 million/day revenue reduction if the cap binds — about $20 billion a year. In practice, Russia evaded much of it using a 'shadow fleet' of tankers and non-Western insurers, so Urals often traded above $60. The example shows both the arithmetic logic of targeted sanctions and why enforcement, not design, usually decides their bite.