Economic Sanctions That Work
Economic sanctions are almost always an ineffective way of achieving foreign policy goals. As we have seen in places like Iraq, North Korea, and, especially, Cuba, cutting off trade tends to make innocent civilians suffer while actually bolstering the regime, who now has a ready scapegoat for all the society’s ills. Well-targeted sanctions, though, can actually work.
Matthew Levitt points to the success of the U.S. Treasury Department and its UK counterpart in blocking terrorist finances through the innovative use of financial intelligence.
His CT Blog colleagues, Olivier Guitta and Michael Jacobson, examines the use of economic sanctions against Iran. Rather than a catch-all approach, we’ve instead used a combination of pressure and incentives to prevent Europeans from banking and otherwise investing in critical sectors.
Regarding banks, the results are impressive: according to diplomats and economical experts, not a single European bank now ventures in financing large projects in Iran. “The Americans played their cards very smartly” says a diplomatic source in Paris.
Regarding multinationals, the US did not follow the strategy of the 1990’s of using a domestic law sanctioning companies (US and foreign with offices in the US) doing business with Iran. Instead they went directly to the foreign companies listed on Wall Street. They evoked sanctions, fines or the likely boycott from US pension funds. It is working, a French diplomat acknowledged: “it is very efficient. What can we do?”
Jacobson adds that we’ve stifled foreign direct investment in the Iranian oil industry. Indeed, “The European Union (EU), for one, has exceeded UN requirements by imposing a full arms embargo on Iran and bringing sanctions against entities that have not yet been designated by the UN.”
To round out the AoE, our efforts in dealing with North Korea using the banking system seem to have been pretty effective, too.