Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

Economic Sanctions, how effective are they?

Transfer embargo on Cuba

Economic sanctions are a punishment placed on one country by another or more likely by a group of countries. These are mainly based around trade; from import or export quotas (a certain number of goods you will trade with that country) to all out bans on trade. A good example of the latter is the current transfer embargo on Cuba by America, which bans nearly all trade with the country barring “humanitarian” goods and is the longest transfer embargo in modern history. This is also a good example of how economic sanctions are used as a weapon by bigger countries or groups of countries to put pressure on smaller countries. The Cuban transfer embargo started because Cuba nationalised the properties of American citizens and corporations, an act not quite deemed serious enough for war, but adequate enough for economic sanctions to take place. In more modern times we have seen economic sanctions become all the rage, with the EU and USA using their collective trading power to put real pressure on countries in Africa and the Middle East to try and displace dictatorships.

But the problem with recent examples is that even after severe economic sanctions, military intervention was needed for the final push. Looking at examples in Africa, economic sanctions placed on Libya weren’t enough to topple the regime and military action from both Europe and the USA was needed. While in other cases such as the Ivory Coast or Egypt, even if outside forces didn’t intervene, rebel forces were needed to overthrow the government. Another example can seen in the Middle East, where Iraq faced heavy economic sanctions from the end of the gulf war till 2003 when Saddam Hussein was finally toppled, but this revolution couldn’t have happened if not for America and Britain’s messy intervention.

Military intervention inevitable?

All this points to economic sanctions as ineffective, and this is a point being argued by Israel as America and Europe continue to progress with heavy economic sanctions against Iran to try and convince them to stop their nuclear programme (which is suspected of leading to Nuclear Weapons). Israel have a right to be nervous, Iran recently enriched more uranium and have made unofficial threats to the country of Israel. The argument is that time is running out and economic sanctions are not working fast enough, indeed the current oil embargo by Europe isn’t set to come into action until June this year.

Iran continuing their Nuclear project

The arguments against economic sanctions are that they can have a negative effect on the imposing nations – less trade works both ways- and that it doesn’t stop other countries trading with the targeted country. The first argument isn’t a problem if it’s a big country or group of countries against a smaller one as they can survive without that trade while the smaller nation will be cut off from a large chunk of its revenue.  But the second argument can be a big problem, as with the Iran oil embargo, Europe and American efforts were not as effective when China and India continued to buy oil. The biggest argument against transfer embargoes is that the majority of the effect hits the public rather than the regime in control. In many countries, dictator’s stock up on goods and live comfortably while their people live in poverty without foreign aid.  Maybe for an economic sanction to fully work, it would need to be a global ban on trading, but while good in theory, practically it doesn’t seem realistic with nations usually looking after their own invested interests.

Gaddafi living in luxury 

But does this mean economic sanctions are ineffective? In my opinion no, they are still an effective tool to weaken countries. In the Iran case, while sanctions haven’t come into effect yet by Britain and France, their companies have already switched to other sources in preparation, increasing the speed of the effect. With oil accounting for over half of Iran’s income, these measure are sure to bite and over time will take effect (with a predicted 60% drop in oil sales). The argument that China and India are still buying oil doesn’t have as much merit when you consider that they will now have a lot of power as rare customers, and will be asking for discounts, as well as the fact that China and India cannot make up for the gap in the market of Iran’s exports. The argument that this will only effect the population of Iran and not the government is a still a valid point, but a more recent form of economic sanctions have become increasingly more effective: Financial sanctions. These involve freezing foreign assets, stopping loans to the country and targeting the central bank of the country. These types of sanctions seem far more effective in these times of financial credit, where most countries rely on credit to keep their economies running. In Iran’s case the financial sanctions imposed by USA have been detrimental to their economy; by penalising any foreign financial institutions from doing business in Iran, the effect has been a 50% drop in the value of the rial (domestic currency) sky high interest rates and a lack of dollars in the market. This is explained in more detail here

USA’s economic sanctions on countries

These new financial sanctions can be the way forward as smaller countries rely on not just credit from the larger currencies for their economies to run smoothly, but also the business that come with it. Multinationals that bring FDI (foreign direct investment) can easily be scared away by fluctuations in the market – the exact effects that financial sanctions bring – and this leaves massive gaps in the economies and labour force. Not only are they more effective than trade embargoes, they get around the problem of only affecting the public, as they freeze the cash that the government uses as well. So while economic sanctions of old can look ineffective without military support, the new breed of financial sanctions look much more effective and accurate (actually effecting the intended target, the regime) and could possibly avert wars from happening. If evidence was needed, just look at the recent turn around of North Korea, to see that economic sanctions can work when given time. The question is whether there is enough time for sanctions to work in Iran, with the clock ticking…


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7 thoughts on “Economic Sanctions, how effective are they?

  1. The U.S. embargo on Cuba actually includes humanitarian material (such as medical supplies), and it includes a ban on any company that does any business with Cuba from doing any business with the United States. After 50 years, the embargo has done nothing but hurt the people of Cuba. But countries that don’t do as ordered to by the U.S. are punished, and that is the real point of the sanctions against Cuba. Human rights abuses? They don’t seem to be an issue with Saudi Arabia, Bahrain, Iran under the shah, Chile and Argentina in the 1970s and so many more. But economics is inevitably intertwined with politics, isn’t it?

    • Does it really? I did not know that, when did this change, I knew early on they allowed such good into the country and just assumed they wouldn’t have changed that.

      It does just seem plain ignorance to keep these sanctions up on Cuba. If they really wanted to change the government, then distancing the public isnt going to do it. From my experience, the best way to start a revolution is to enlarge the middle class by allowing money into the country, a long term strategy but the most effective in my opinion. Look at Russia, their people were poor and accepted any sort of change back in the 90’s. Now there is a much better standard of living and bigger middle class, they are disenchanted with a corrupt government. Give the people more power and they can change their own country I think.

      • Many medicines and medical products are made by U.S. companies and, thus, cannot be acquired by Cuba. As an example, in 1994, the only major non-U.S. pacemaker in the world was sold to a U.S. company on condition that sales to Cuba would be discontinued. [Richard Garfield and Sarah Santana, American Journal of Public Health, January 1997.] The same report quoted a July 1995 written communiqué from the U.S. Commerce Department stating that sales of soap and milk contribute to “medical terrorism” on the part of Cubans. I couldn’t make that one up in a hundred years.

        The U.S. embargo is total, covering all categories of trade, including food and medicine. It also applies extraterritorially; thus, ships that dock in Cuba are banned from also docking in the U.S. for six months, even if those ships bring only humanitarian goods, and companies outside the U.S., including Canadian companies, are subject to U.S. sanctions. Many traders that wish to conduct business with Cuba do not because they would lose access to the vastly larger U.S. market. []

        It is rather difficult for a small country like Cuba to increase living standards when the embargo causes so many shortages. But it is not “changing the government” in itself that the U.S. is interested in, it is opening Cuba to U.S. corporate exploitation in the manner of the Batista era.

        As to Russia in the 1990s, the change to all-out “shock therapy” neoliberalism was not “accepted,” it was imposed. Russia’s economy shrank for nine consecutive years during the decade, and tens of millions were thrown into poverty. Russia’s material gains of the 2000s are very inegalitarian and mostly dependent on high prices of oil, natural gas and metals, the lifeblood of the Russian economy. Material gains do indeed lead to a restive middle class that seeks further gains and a political and social voice, a natural development. That same process took place during the last decades of the Soviet Union, which was one of several factors in the institution of glasnost and perestroika during the Gorbachev era.

        The power of everyday people to change their society rests on multiple legs. Nobody, certainly not the middle class in Russia, the U.S., the U.K. or anywhere else, is ever “given” power. The power of people to bring about reforms or revolutionary change is based on they themselves self-organizing and taking power for themselves. Democracy is the product of a long process of struggle — it has never been a gift from above and never will be.

        • Maybe I worded it wrong, what I was trying to say is rather than anyone or the governement giving peope power, i was trying to say people gain power from money flowing into the country. When the standard of living rises in a country and incomes grow, the public start to expect a better life and have more weapons at their disposal. With a better infrastructure and technology comes better communication between masses.

          With Cuba I was trying to say the USA are stopping this by keeping the Cubans poor and the country disconnected. By lifting the embargo, maybe Cuba could grow and its people grow with it?

  2. If the embargo were lifted, Cuba would grow and the Cuban people would be better off – you are quite right. But the embargo is strictly vindictive, and also an ongoing product of internal U.S. politics, which remain as backwards as ever. I think that people who are good-natured such as yourself tend to see other people as similarly good, and that holds across ideology. I can think of my father, who was (very much unlike me) quite conservative, but he always erred on the side of seeing good in other people. The U.S. embargo isn’t a product of “decent” leaders inexplicably following a bad policy, rather it is a raw product of economic power and political domination for economic and political ends. Like you, I wish these sanctions would be called off. This is your blog, so it is only proper that I allow you the last word.

  3. Where did you get these references from? 🙂

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