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#40: With Agathe Demarais
Thank you for reading The Hundred, a newsletter in which experts provide analysis on questions that matter. This is our interview format, where we give one expert enough space to answer around 10 questions in a little more detail.
Agathe Demarais is a sanctions expert. She was previously a senior policy adviser for the French Treasury in Russia and Lebanon, working on sanctions and other economic and financial issues. She also wrote Backfire, a new book about the unintended effects of (American) sanctions. Our questions are in bold, her answers in quotation marks.
At its most basic, what are sanctions?
“Sanctions are a diplomatic tool for a country (such as the US) to apply economic pressure on another one so that it changes its behaviour. For instance, sanctions against Iran in the 2010s were meant to inflict economic and social damage on Tehran in a bid to compel the Islamic regime to sign a nuclear deal with Western countries.
Sanctions can take several forms, and in this interview I’ll focus on US penalties. They can target individuals, whose assets in the US are frozen (the measures also come with a travel ban). Such measures target Russian oligarchs, for instance. Sanctions can also apply to firms or even entire economic sectors (such as the energy, financial and military sectors in Russia). Such penalties prevent American companies and citizens from doing business with entities under sanctions.
Finally, the US also imposes secondary sanctions: these measures prevent all firms around the world, foreign or American, from doing business with countries or companies under sanctions. Such penalties applied to Iran in the run-up to the nuclear deal, for instance.”
When did sanctions start to become an instrument of foreign policy?
“Sanctions date back to ancient Greek times, but in modern days the US started to apply sanctions in the 1960s. At the time, sanctions took the form of trade embargoes, notably on Cuba and North Korea. Sanctions became a popular foreign-policy tool for the US much more recently, though, in the early 2000s. Since then, Washington has been applying sanctions fairly frequently, for instance against Iran, Russia, and Venezuela.
Modern-day sanctions are different from those that were imposed in the 1960s. They now target financial channels, effectively preventing financial transfers to be processed for some transactions (for instance buying Russian-made military gear).”
We seem to be seeing more and more sanctions. Is that the case? Can we quantify that?
“Yes, this is definitely the case. Nowadays, the US has around 70 sanctions programmes, targeting more than 9,000 individuals, companies, and economic sectors in virtually every country in the world. The US enthusiasm for sanctions is nothing new. In the 1990s more than half of the world’s population was already under American sanctions. In 1998 President Bill Clinton lamented that the United States had become “sanctions happy.”
The trend has accelerated in recent years. In 2017-20 the Trump administration put more than 3,900 people and companies under sanctions—reaching an average of almost four sanctions designations every working day.
This was massive, but it pales in comparison with the response of the Biden administration to Russia’s invasion of Ukraine. Only two months after the attack, the US had imposed penalties on around 1,000 Kremlin-linked individuals, banks and companies.”
Why are sanctions such a popular policy tool?
“Sanctions are popular because they fill in the void between two extreme options in the diplomats’ toolbox: (empty) diplomatic declarations and (deadly) military interventions. In addition, sanctions have other advantages.
First, it is very quick to impose them: it may take as little as a few hours to draft penalties.
Second, they are cheap: only a handful of civil servants can prepare sanctions, which are then implemented by banks and multinationals. This is a crucial point: in effect, the US is externalising the implementation of its foreign policy, leaving it to firms to check that their business dealings comply with sanctions.
Third, sanctions are an easy way to show public opinion that the US is responding to unfolding crises. In fact, some studies show that sanctions tend to boost the approval ratings of those policymakers (such as members of the US Congress) that support them.”
How are effective sanctions designed?
“It is hard to make generalizations, as every sanctions programme is specific and every target country is unique. Yet typically effective sanctions tend to respect four criteria.
First, sanctions work fast or never. If penalties have not yielded results within a few years, the target country usually has no intention of giving in. Conversely, if sanctions have not proved effective after some years, then they are unlikely to yield results."
The second characteristic of typically effective penalties is that they have a narrow purpose, such as the release of a political prisoner or the settlement of a trade dispute. By contrast, sanctions that have broader objectives, such as regime change in Cuba, North Korea or Venezuela, tend to fail. This explains why sanctions against dictatorships seldom work.
The third characteristic of typically successful sanctions is that they target economic partners. US sanctions against Turkey in 2018 fit this pattern. Washington and Ankara have long had significant economic links and are NATO allies. Sanctions were an anomaly that needed fixing. Conversely, if the US targets a country with which it has few ties, the sanctioned country will have little incentive to alter its behaviour.
Finally, multilateral support is crucial for sanctions to be effective. In 1970-90 only 13% of unilateral US sanctions appear to have achieved their stated goals. Penalties against North Korea illustrate this issue. More than 90% of North Korea’s trade goes through China. The rest tends to go to Russia. If Beijing and Moscow are not aboard, sanctions on Pyongyang are useless; they will never be implemented on the ground.”
Can you give an example of well-crafted sanctions that had the desired effect?
“Libya is a good example of a sanctions win, and it also highlights the fact that typically effective sanctions are multilateral ones. In the late 1980s the UN imposed stringent penalties against the regime of Muammar Gaddafi following the bombing of Pan Am Flight 103 over Lockerbie, a small town in Scotland, killing 270 people. One year afterwards, Tripoli downed a French airliner, UTA Flight 722, over Niger, murdering a further 170 people. Western countries froze the assets that the Libyan government held abroad, depriving the regime of cash. UN sanctions also prohibited all exports of oil and gas equipment, as well as arms sales, to Tripoli. Air travel to and from Libya was banned.
Libya’s energy infrastructure started to crumble as investment and access to Western technology dwindled. Growth became a distant memory, raising the risk of social unrest amid skyrocketing inflation. Overall, Libyan government officials reckon that international sanctions cost the country around US$30 billion. For Tripoli, this was too high a price to pay. In 1999 the country handed over the two Libyan suspects in the bombing of Pan Am Flight 103. Gaddafi also announced that he would stop waging terror attacks and stayed true to his word. Libya’s nuclear arsenal and stock of chemical weapons were dismantled under international supervision. In return, the US and the UN lifted sanctions against Tripoli.”
How effective are Western sanctions against Russia?
“Sanctions against Russia are probably the most complex ever imposed, so they deserve a special analytical framework. In a nutshell, these measures have three objectives.
The first one is to send a diplomatic signal of Western resolve and unity to Russia. From that perspective, sanctions have been effective (Vladimir Putin probably did not expect such transatlantic unity on sanctions).
The second goal is to complicate Russia’s ability to wage war. Here again, sanctions are working: the Russian budget is in the red, and the Russian economy will record a recession this year and next. The Russian leadership still has some financial reserves, but at some point it will have to make difficult financial choices at a time when social unrest would be a threat to the regime.
Finally, sanctions on Russia seek to asphyxiate the Russian economy by depriving the Russian energy sector from Western financing and technology. For Russia, this is an existential threat: current energy fields are fast depleting, and the Kremlin needs to develop new fields in the Arctic. With the required money and technology, this will prove impossible, accelerating Russia’s loss of its coveted status as a global energy superpower.”
What additional sanctions are on the table, and how damaging would they be to the Russian economy?
“Western countries have not exhausted all the sanctions options that are on the table against Russia. Three potential measures would be particularly painful for Moscow, and all are part of the playbook that the US has used against Iran. First, the US could impose pressure on Swift for this institution to cut the access of all Russian banks from its network (only a few Russian banks have been disconnected from Swift, so far). This would send Russia into complete financial isolation, as happened to Iran after it was cut off from Swift in 2012.
Second, the US could impose curbs on Russia’s oil exports. So far, such measures are not in place, but given that energy exports are the financial lifeline of the Putin regime, this would be a huge blow to Russia. It would probably be able to continue exporting oil under the radar, but potential buyers would ask for a steep discount.
Finally, the US could impose secondary sanctions on Russia. So far, US secondary sanctions on Russia only relate to the military field. If such sanctions were to be imposed, all firms around the world would need to choose between keeping access to the American market or continuing to do business with Russia. Faced with such a threat, the immense majority of firms would likely ditch the Russian market.”
What’s a question you wish you were asked and what’s your answer to it?
“That question would be “Is the golden age of financial sanctions over?”.
My answer would be yes, given that a number of countries are setting up financial systems to circumvent sanctions. Such measures take three forms: avoiding the US dollar for international trade (and stick to local currencies, such as the Russian rouble and the Chinese renminbi instead), building alternatives to Swift (such as China’s CIPS), and developing digital currencies (like the digital renminbi). Over time, and taken together, the cumulative impact of these innovations may well diminish the effectiveness of US sanctions.
For American diplomats, this is a genuine threat: if sanctions become ineffective, the only remaining tools to apply pressure on rogue countries will be diplomatic declarations or military interventions. It also highlights the fact that the sanctions of tomorrow will probably focus on the technological sector, notably on semiconductors.”
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