x Abu Dhabi, UAEFriday 19 January 2018

A game nobody wins

How to explain the American enthusiasm for economic sanctions in the face of overwhelming evidence that they seldom do any good?

How to explain the American enthusiasm for economic sanctions in the face of overwhelming evidence that they seldom do any good?

Successive US presidents, going back decades, have imposed sanctions against a host of international "enemies" at the drop of a hat. Congress has invariably been totally supportive of the administration's sanctioneers and the great US public is also usually 100 per cent behind its political masters.

Remember the boycotts by American consumers of food products when the French came out against the Iraq war in 2003?

Americans' love affair with sanctions flies in the face any empirical evidence of their effectiveness. I challenge anybody to name one example of an economic sanctions campaign that has, on its own, had the desired effect: namely, to persuade the target country to desist from the actions the US has decided are undesirable.

Granted, sanctions against South Africa and Libya are often cited as the epitome of successful campaigns, but in both countries a range of political pressures conspired to bring about historic change.

A look at some of the most notable cases of US sanctions is far more revealing: North Korea has been a pariah since the end of the war against its southern neighbour in 1953; Cuba has been the target of a US sanctions war since the Castro regime came to power in 1959; Iraq was put on the embargo list in 1990 after the invasion of Kuwait; and Iran has been blackballed to varying degrees since the overthrow of the Shah in 1979.

Combined, those examples represent about one and a half centuries of sanctions, yet in none of these cases can US policy be regarded as successful. In the case of Iraq, it was so unsuccessful that the Americans had to mount the most expensive war in history to get the result sanctions failed to achieve.

The conclusive lesson of history is that economic sanctions do not work, they end up hurting people other than the leaders of the regimes at which they are aimed, and they are often a prelude to military action, the thing they are designed to obviate.

With these firm convictions, I went along the other night to a lecture at the Dubai School of Government. Hal Eren is a leading Washington lawyer whose law firm specialises in sanctions advice, and a former adviser to the US Treasury, so he knows what he is talking about.

Mr Eren's subject was the latest example of US "sanctionitis" - the heightened measures taken against Iran to halt its nuclear programme and alleged support for terrorism.

In July, the US administration enacted the comprehensive Iran sanctions, accountability and divestment act (CISADA), legislation that went further than previous US measures and UN provisions against Iran.

As Mr Eren explained, CISADA is based on the principle that "the friend of my enemy is my enemy", and sets international commerce a stark ultimatum: if you do business with Iran, you cannot do business with the US.

Although the act is ostensibly aimed at preventing outside investment and involvement in the Iranian energy sector (and specifically the export of refined-oil products), its scope is so sweeping and its parameters so ambiguous that in effect it is a heavy warning by the US against doing any business with Iran at all.

Since energy is the biggest single business activity in Iran and its main foreign exchange earner, almost any action by a foreign company - in shipping, insurance or trade finance - can be interpreted a breach of CISADA.

The Iranian Revolutionary Guard, whose personnel overlaps with the country's military-industrial complex in the system of Bonyads (charitable trusts that dominate Iran's non-petroleum economy), is a prescribed organisation, as are huge swathes of the Iranian banking system. Again, almost any activity by a foreigner can be deemed to fall under CISADA. Only the food and agriculture industries are deemed safe.

Sanctions breaches lead to tough penalties. Assets owned in the US can be seized, visas denied and banking facilities closed down. A transgressor is effectively cut off from the US financial system, which for many international businesses, as Mr Eren pointed out, is virtually the equivalent of being barred from the global financial system.

Because of its cultural, historical and geographic ties, Dubai is at "the forefront of the sanctions issue", said Mr Eren. US hawks argue that the emirate falls within the "destination of diversion" category listed in the act, which means Dubai does a whole lot of business with Iran that the US might decide falls within the CISADA provisions.

The emirate has already felt the effect, with many banks and businesses halting the trade across the Straits of Hormuz that they successfully engaged in for generations.

Businessmen at the School of Government claimed some of them had suffered a drop of up to 50 per cent in business as banks withheld letters of credit and closed banking facilities to traders with Iran.

Whether this is justified, or an example of the over-compliance phenomenon Mr Eren identified, remains to be tested. Many in the region are too fearful of the consequences of offending the Americans, it appears.

Maybe CISADA's fierce stance will work but history is against that outcome. Whatever happens, Dubai is suffering an externally imposed and artificial impediment to economic recovery.