Economic Statecraft in World Affairs: An Interview with Bryan Early

We recently had the opportunity to sit down with Dr. Bryan Early, founding Director of the Project on International Security, Commerce, and Economic Statecraft (PISCES) at the State University of New York at Albany. Dr. Early is Assistant Professor of Political Science and Public Administration, as well as an expert on economic sanctions, proliferation issues and terrorism. He is the author of Busted Sanctions: Explaining Why Economic Sanctions Fail (Stanford University Press, 2015) and has previously appeared in Reuters, CNN and on National Public Radio.

SD: In a previous interview with NPR you referred to sanctions as “double edged swords,” due principally to the impact enacting sanctions on a country like Russia can have on US and European firms. What areas do you generally consider of less consequence to Western policymakers in imposing sanctions, and to what degree do you believe Western policymakers are willing to go  before the cost becomes too great?

Early: Within the United States and European Union, concerns over trade and lost economic opportunities because of sanctions can be overridden by the political expediency of policymakers.  In the case of sanctions against Russia, the U.S. Chamber of Commerce had initially run a campaign that opposed the imposition of commercially disruptive sanctions against Russia. Despite the opposition of specific economic interests groups, there is little evidence to suggest that general U.S. voters ever really hold policymakers accountable for economic costs associated with the imposition of sanctions. In contrast, U.S. policymakers often impose economic sanctions for domestic political purposes in order to demonstrate to the public that they are taking foreign policy crises seriously. Sanctions against other countries can be viewed as a way of obtaining/maintaining domestic popularity, especially if the general public finds the target states’ behaviors highly objectionable.

The costs of imposing and/or maintaining economic sanctions tend to command a great deal more attention for policymakers when there are concentrated economic interest groups that are willing to mobilize against sanctions policies. These groups could be in the energy sector, agricultural sector, or other affected industries. They are not always effective, but these groups remain influential. In European countries like France, for example, agricultural interests groups were initially opposed to the imposition of broad scope sanctions that would disrupt their profitable export trade with Russia. That economic-focused opposition likely played into Vladimir Putin’s decision to impose counter-sanctions against EU food imports.  France was also initially opposed to the imposition of sanctions that would block its planned delivery of warships to Russia as part of $1.7 billion arms deal because that would damage its arms industry. It eventually did cancel the delivery of the warships in the fall of 2014. However, there is increasing domestic political pressure in France to terminate the sanctions against Russia.

Suffice it to say, there’s no clear tipping point at which the commercial costs of sanctioning a country grows too great to remove them. That varies based upon the salience of the issue at stake, the interests of the commercial sectors affected, and the priorities of political leaders.  Concerns about the domestic political costs of sanctions can certainly inhibit their use, though, and the effectiveness of the sanctions that leaders employ.

SD: Sanctions have a historically low success rate. The political outcomes desired by policymakers are almost never produced, with sanctions oftentimes having the opposite effect on “hostile” regimes. In the case of Iran, Tehran was willing to see entire sectors fail in order to maintain policies deemed unfavorable by the West. Given this, why do you believe Iran is back at the negotiating table now vs. several years ago when President Khatami was in power?

Early: If you go back in time, I think that President Khatami of Iran was actually quite open to the possibility of reconciliation with the West. During his presidency, it was much more the political climate in the United States that undermined the possibility of political reconciliation with Iran.  Additionally, President Khatami was also viewed as a threat to the conservative establishment within Iran’s Government.  Those elements consistently preferred to oppose and/or erode his efforts at affecting political change within Iran. President George W. Bush’s “Axis of Evil” speech also was a major factor in cutting off the opportunity for political reconciliation with the U.S. and empowered anti-U.S. hardliners in Iran, like Mahmoud Ahmadinejad, to return to power.

I think that President Hassan Rouhani could play the role of a broker in a nuclear deal due to his long history of involvement in Iran’s nuclear program in various other government positions and that his candidacy was fueled by domestic political discontent with his predecessor. President Ahmadinejad’s inflammatory rhetoric, the lack of constructive movement on nuclear negotiations during his tenure, and his contested election in 2009 made it much easier for countries around the world to justify sanctioning Iran, especially in Europe.  Europe’s participation in the sanctions against Iran has had a significant impact on their effectiveness, which has eroded the economic welfare of many average Iranian citizens. The recent decline in the price of oil has only exacerbated the sanctions’ effects.  While there are a number of other important players in Iran that would need to agree to a deal, including the Supreme Leader, President Rouhani has both the credibility among Iran’s other key political players and a popular mandate to potentially reach a deal.  I am not terribly optimistic that a deal can be struck by the next deadline, but Rouhani being president means there is a credible chance that it could occur.

SD: Some have referred to sanctions as the “blunt edge of diplomacy,” and while not the perfect solution, preferable to any type of bellicose conflict. Do you believe this will continue to be the case, or might a more targeted and more surgical means of exacting a political outcome emerge as an alternative?

Early: For better or for worse, economic sanctions will continue to be a major part of the United States’ diplomatic portfolio.  They fit right into the “Goldilocks” gap for foreign policy challenges in which diplomatic responses are not considered to be strong enough (too cold) and military responses are viewed as either too costly or inappropriate given the issue at stake (too hot). Policymakers prefer economic sanctions because they are a definitive foreign policy action that demonstrates that are doing something in response to a crisis or policy challenge.  They can also be imposed relatively quickly and often with few upfront costs. For countries that can readily absorb the costs of imposing economic sanctions, like the United States, we will continue to see them used as a frequent foreign policy tool by policymakers. This is despite the fact that their poor track record of success is common knowledge.  As Daniel Drezner pointed out recently in his blog, the 2015 U.S. National Security Strategy issued by the Obama Administration mentions sanctions nine times and features their use very prominently. Economic sanctions will continue to play a significant role in U.S. foreign policy for the foreseeable future.

SD: Picking up on the previous question, the Russian economy is clearly in dire straits and the existing issues are expected to worsen as sanctions are allowed more time to take effect. The Kremlin’s response has been defiant as Moscow seeks to supplant Western influence in its economy with other partners – China, of course, but other smaller partners as well. This policy cannot endure perpetually due to the limited amounts of foreign reserves held by the Russian Central Bank. With that said, do you believe these sanctions are seen by Moscow as a temporary measure, or as others have speculated, could numerous rounds of sanctions “tightening” come down the road?

Early: Russia can certainly rely on the sanctions-busting assistance provided by other countries, like China, to ameliorate the costs of the sanctions in the near-term and its ability to find and leverage alternative commercial relationships will only improve over time.  My research suggests that sanctioned states get increasingly more skilled at evading or undercutting sanctions over time, as well as better at finding more cost-effective alternatives.  In the immediate scramble to respond to sanctions, firms in sanctioned states may be willing to work with anyone that can replace the commerce they have lost and be willing to pay a significant premium to do so.  Over time, though, they have the ability to seek out better deals and new sanctions-evading entities will emerge to compete in capturing a share of the profitable sanctions-evading commerce. Additionally, pressures will grow for the firms that have lost out on trade with the sanctioned state because their governments [the United States and EU in this case] have imposed sanctions. They will lobby their governments to give up the sanctions in some cases, or they will seek their own ways around the sanctions policies that have cost them money. We can already see the former in countries like Great Britain and France.

For Russia, the most critical period is surviving the initial round of sanctions and finding ways to make structural adjustments to its international commercial networks that can make these costs more tolerable.  The precipitous decline in oil prices has made this adjustment period significantly harder for Russian companies, as finding replacements for Western financial institutions and capital markets is much harder than finding replacements for Western goods.

My view is that, over the longer term, the U.S. and EU will have to continue imposing more and more sanctions restrictions just to keep pace with Russia’s increasing ability to circumvent and adjust to the ones already in place.  In other words, new sanctions will be required just to keep the same level of economic pressure in place.  Generally speaking, sanctions tend to be most effective when exceptionally harsh, crippling sanctions policies are imposed up-front, all at the same time, rather than when the severity of sanctions is escalated slowly over time.  If U.S. and EU sanctions don’t work in the near term, I don’t think they will achieve their objectives in the long term.

SD: In your opinion, what is the track record of sanctions as a tool of foreign policy? Does it work mainly on a symbolic, theatrical level to display lack of approval or do they take a more surgical approach to apply pressure to coerce policy changes? Does isolating a target regime through sanctions necessarily oblige it to change its behavior or does it mostly drive the prospect of diplomatic negotiation and exchange farther away?

Early: Economic sanctions are often fairly ineffective at achieving their objectives once they have been imposed, but they can create a whole host of problems for their targets that go far beyond the economic realm.  As such, economic sanctions often punish target states even if they do not effectively coerce them into changing their behaviors in desired ways.

Depending upon which approach one takes, scholars have found that economic sanctions that get imposed are only likely to achieve their objectives between 5%-34% of them.  Thus, sanctions only succeed at most a third of the time they are imposed and that holds even when the United States imposes them.  Merely threatening sanctions can sometimes yield concessions from threatened states, though. When that is taken into account, economic sanctions do appear to be a somewhat more effective policy tool.  When threats do not work and sanctions have to be imposed, however, they fail to achieve their objectives most of time.  The argument I make in my book Busted Sanctions is that the responses of other countries around the world play a major role in undercutting the effectiveness of sanctions.  Politically-motivated states can undercut sanctions against a target by providing them with massive aid packages while commercially-motivated states can step in to fill the commercial voids that sanctions leave in their targets’ economies.  Via both new aid and trade, sanctioned states can effectively weather the sanctions imposed against them.

Even if sanctions don’t work as intended, additional scholarship has recently shown that sanctions have a number of perverse effects upon their targets.  Sanctions have been shown to cause declines in public health, as well as to cause sanctioned governments to increase their use of political violence, engage in repression, curtail media freedoms and women’s rights, and become more authoritarian.  Sanctioned state are also more likely to experience an uptick in organized crime, which can spill across their border into neighboring countries.  Additionally, sanctioned states are also more likely to be attacked by other countries as well.  All this suggests that the aggregate costs of being sanctioned are very high, but unfortunately sanctions still do not achieve their primary goals most of the time.

SD: As restrictions have eased on Iran in the recent past, it has begun to court investment from European and Middle Eastern companies – will multinationals, particularly in the energy industry, be willing to engage with a newly opened Iran, especially given how tenuous the lifting of current sanctions are?

Early: Yes. Many European firms are chomping at the bit to get back into Iran or to legitimize the business they are already doing there via indirect means. I would say the biggest barrier for Iran would be where it is going to find the money to finance its spending.  Whereas many companies will be more than glad to sell Iran almost any products it wants to purchase or buy Iranian oil, I think that lenders will be far warier of loaning Iran money until its economy recovers.  Firms may also be wary of making large capital investments in the country as well, given the uncertainty that exists with respect to the country’s foreign policy circumstances. I think there will be those that are willing to take at least some of those risks, though.

The will to continue sanctioning Iran is far less in Europe than it is in the United States. My research with Robert Spice has shown that EU states are far more likely to undercut U.S. economic sanctions with their trade than any other countries in the world when they are not obligated to participate in sanctioning efforts.  If EU sanctions lapse, companies within Europe will leaping at the chance to do business with Iran once again.

SD: How much of the damage done to the Russian economy was due to sanctions in conjunction with falling oil prices? Do policymakers currently consider that the impact was substantially more than expected, less than expected, or exactly what they expected?

Early: I think there was a definite interactive effect between the falling oil prices and the damage that sanctions have done to both Iran’s and Russia’s economies.  I think that the sanctions especially hurt the Russian oil sector when the oil prices fell because those companies had been reliant upon Western lenders whereas Iranian companies had already faced substantial restrictions to obtaining Western sources of capital.   The Russian companies had built the presence of Western lenders into their contingency plans for how they would respond to steeply declining oil prices, and the sanctions interfered with those plans. I am unsure to what extent that U.S. and European policymakers could have predicted what has happened with respect to international oil prices, but I think their sanctioning efforts have definitely inflicted far greater damage on Russia’s economy as a result.

In the end, though, the significant economic damages that have been inflicted upon Russia’s economy have not seemed to fundamentally alter Russia’s continued interventions within Ukraine nor reversed its annexation of the Crimean Peninsula. In my view, there is no way that sanctions will ever be able to convince Russia to give up Crimea and, while they may play a limited role in influencing negotiations over Russia’s involvement in the rest of Ukraine, they will not compel Russia to cease its efforts at preventing Ukraine from politically affiliating with Western Europe.

In the long-run, Russia’s energy sector will be able to adjust to the Western sanctions by establishing new commercial relationships or strengthening existing commercial partnerships—in the developing world and among fellow BRICS countries.  Continued low oil prices represent a bigger challenge for Russia’s Government and its energy-dependent economy to overcome.

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