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Geopolitics

The Future of Economic Sanctions in a Global Economy

Reports by Richard Nephew • May 21, 2015

The United States currently maintains an asymmetric advantage in the application of economic pressure on partners and adversaries to achieve its national goals, based on its immense economy and position in the middle of the world’s economic activity. But, it is not certain that this advantage will persist in the future or that it will be as strong, as other countries expand and develop economically. This issue brief, authored by Richard Nephew, Program Director for Economic Statecraft, Sanctions and Energy Markets at the Center on Global Energy Policy, argues that the United States should consider the possibility and implications of such a global environment and adjust its sanctions policies accordingly. Nephew is a former director for Iran at the U.S. National Security Council and was a member of the U.S. nuclear negotiating team with Iran from August 2013 to December 2014. The views expressed here are his own.
The executive summary is below and you can download and read the full brief here (pdf).

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The United States currently maintains an asymmetric advantage in the application of economic pressure on partners and adversaries to achieve its national goals, based on its immense economy and position in the middle of the world’s economic activity. But, it is not certain that this advantage will persist in the future or that it will be as strong, as other countries expand and develop economically. Moreover, the lessons gleaned from the U.S. experience in its application of sanctions over the past ten years could make them easier to use against the United States. By embracing targeted sanctions that achieve their effect primarily through the discrete application of pressure on individuals and banks, the United States may have inadvertently shown future adversaries a way to apply pressure on the United States without engaging in implausible, counterproductive, and mutually destructive countrywide sanctions initiatives. As with the use of cyber warfare and drone strikes, the United States may find in the future that, having created a precedent that targeted sanctions are an appropriate response for all circumstances determined by the United States unilaterally, it is facing similar measures against its own companies, banks, and citizens.
Mindful of these risks, this paper argues that the United States should consider the possibility and implications of such a global environment and adjust its sanctions policies accordingly. This should include efforts to:
  1. Recognize that U.S. trade policy, regulation and sanctions can impact other countries in unintended ways and drive them away from the US and the international system it has fostered. To minimize such risks, the United States should take a more measured approach to using such tools and powers;
  2. Conduct the necessary economic analysis of short- and long-term implications of individual actions, as well as the net effect of all US sanctions programs;
  3. Operate in a transparent manner so that US and international actors understand and can follow US sanctions steps;
  4. Combat perceptions of favoritism by creating regularity in the sanctions process and conform international practice to US efforts. This should include the adoption of a public information period—akin to the Federal Register process—before broad categories of sanctions are imposed and making available licenses or similar “safe conduct” passes from the US government for foreign companies otherwise at risk of sanctions; and,
  5. Consider international approaches to sanctions regulation akin to international arms control efforts.
Similarly, I advise that companies with international operations should work now to identify their current vulnerabilities to future sanctions risks and consider ways to protect themselves, such as through the incorporation of force majeure clauses into contracts within risky jurisdictions and insurance against the risk of sanctions imposition.

By adapting its sanctions policies now, the United States may be able to change some aspects of the trajectory of an otherwise prejudicial future international operating environment, preserving its ability to continue using sanctions as an effective foreign policy tool and improving their effectiveness.

Download and read the full issue brief here (PDF)

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Geopolitics

The Future of Economic Sanctions in a Global Economy

Reports by Richard Nephew • May 21, 2015

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