Wednesday, May 29, 2024

Finance – Mass Destruction Weapon? Sanctions: Intentions and Results

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Diplomat Magazine
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DIPLOMAT MAGAZINE “For diplomats, by diplomats” Reaching out the world from the European Union First diplomatic publication based in The Netherlands. Founded by members of the diplomatic corps on June 19th, 2013. "Diplomat Magazine is inspiring diplomats, civil servants and academics to contribute to a free flow of ideas through an extremely rich diplomatic life, full of exclusive events and cultural exchanges, as well as by exposing profound ideas and political debates in our printed and online editions." Dr. Mayelinne De Lara, Publisher

By Corneliu Pivariu

In the last fifty years, more than ever before, finances have become a powerful instrument of influence and negotiation between states. The increase in power of transnational entities and their weight in today’s world has led to the emergence of new elements that exceed state dimensions. Besides the emergence of what has been called for some time “economic hitmen,” whose results are seen in various countries around the world, from South America to Europe, a mechanism through which political pressure can be exerted on a state or regime is through economic sanctions.

 Apart from the significant effects they can have on the economy and population of a state, sanctions can be considered an effective means of pressure on a recalcitrant regime or state. They can be used to induce political and other changes, potentially leading the population of the targeted state to demand and support profound changes.

The essential question is whether economic sanctions are indeed effective in achieving the political and economic objectives intended by their issuers. Their effectiveness is primarily determined by two elements: how the state(s) adopting these sanctions adhere to them, and how the targeted state manages to counteract the effects of these sanctions.

An eloquent example is the sanctions imposed on Iran in the context of its nuclear program. Despite the negative consequences on the Iranian economy, these sanctions did not lead to the cessation of the nuclear program. Furthermore, these sanctions reinforced the opinion among the Iranian population that developing nuclear weapons is the best way to ensure national sovereignty.

Another example is the case of North Korea, which, despite facing severe sanctions, continues its nuclear and ballistic development program, ignoring pressures and sanctions.

In both cases, there have been states that have helped both Iran and North Korea mitigate the negative effects of the sanctions they face.

Another example, often forgotten, more or less intentionally, is that of the sanctions imposed on Libya after the Lockerbie terrorist attack (1992 – 2003). These had a limited effect on the Kaddafi regime, both due to the countermeasures taken by the Libyan regime and due to the partial non-compliance of some states, including France, Germany, and Italy. Romania, although having significant economic interests in Libya (especially in the oil industry), amounting to many millions of dollars, fully complied with the sanctions, including by closing the direct flight between Bucharest and Tripoli. However, Romania did not know how to properly capitalize on and obtain compensation for the losses suffered in this case.

The most recent example is the sanctions imposed on Russia after the invasion of Ukraine in February 2022. So far, the United States, the United Kingdom, and the European Union have imposed more than 16,500 sanctions on Russia. The main targets were Russia’s funds, with financial reserves of around $350 billion being frozen (approximately half of the total reserves). Another major target was exports of oil and natural gas.

However, the sanctions did not have the intended effects, as Russia found ways to limit their impact. It is estimated that Moscow uses a fleet of about 1,000 tankers under foreign flags, managing to export around 8.3 million barrels per day, especially to India and China.

The effects of the sanctions were seen in 2022 when Russia’s economy contracted by 2.1%, but grew by 2.3% in 2023, with an estimated growth of 1.1% in 2024.

The conclusion of some important experts is that the sanctions did not make the war costly enough for Russia, which means it will be able to continue it for some time.

It can thus be concluded that economic sanctions are not a foolproof instrument, and their results can vary depending on several factors, such as the political context, the level of international support, and the resilience capacity of the target. In the end, the effectiveness of economic sanctions depends on careful planning and implementation, accompanied by as broad international support and involvement as possible, and the resolution of global crises and conflicts.

Material for MEPEI TALKS2, Bucharest, April 10, 2024

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