Powerful people sitting in the White House, US Capitol or those other European capitals confidently believe, sanctions are the best alternative to winning a war or cow-towing any targeted individual or organization. They also consider sanctions at the most effective tool of projecting power. Under Western sanctions, countries, corporations and recently individual citizens are continuously punished economically.
According to Western analysts, the aim of sanction is to stop or curtail actions which are inimical to the interests or values of the sanctioning state, or contrary to international law, or to both. In the long term the economic impact of sanctions may erode a belligerent state’s will or ability to wage war. So far, so theoretical.
But Agathe Damarais, a global forecasting director of The Economic Intelligence Unit and previously a Senior Policy Advisor to the French Treasury does not believe in this formula.
Agatha Demarais recounts how sanctions have evolved since the 1950s, including the variety of things that can go wrong and backfire on those who have imposed them.
President Eisenhower, with the creation in 1950 of the US Treasury’s Office of Foreign Assets Control (OFAC), instituted the use of trade sanctions as a way of achieving foreign policy goals. The first target was North Korea, a legacy of the Korean war. North Korea’s economic links with the US were tenuous. The approach had to be multilateral: a UN embargo on oil imports and coal exports.
After the revolution in 1959, Cuba was always a particularly American concern. Almost 73 percent of Cuba’s exports went to the United States and 70 percent of its imports came from the US. Yet Eisenhower’s trade embargo, imposed in 1960, failed to achieve its goals. Despite an estimated loss over US$130 billion in income, Fidel Castro died with his regime intact and was succeeded by his brother Raul Castro.
The Kim dynasty in North Korea, which began with Kim Il Sung continues to survive with Kim Jong Un as the current heir of the Kim dynasty. There are always ways of getting around trade embargoes.
Fast forward thirty years to Saddam Hussein’s invasion of Kuwait in 1990. The lessons of North Korea and Cuba had not been learned or were just ignored. Only a few days after Operation Desert Shield destroyed Saddam Hussein’s retreating army, comprehensive international sanctions were imposed on Iraq. They lasted from 1990 to 1995, cutting off even medical supplies and food imports. Estimates of Iraqi children dying of preventable diseases and malnutrition vary from tens to hundreds of thousands. An “oil for goods” provision in 1995 permitted some humanitarian aid to enter the country. But Saddam Hussein was hanged in December 2006 as a consequence not of sanctions, but of military defeat.
According to Agatha Demarais, inflation is the most immediate result of even a partially enforced economic sanction. But it mainly affects the poorest. For example, American OFAC sanctions on Venezuela in 2018 caused the price of a roll of toilet paper to jump “to nearly 3 million bolivars, requiring a three-kilogram stack of 1,000 bank notes to pay for it”. Mass starvation, poverty and fleeing of Venezuelans to neighboring countries followed – but it could not topple-down Venezuelan ruler Nicolás Maduro (Nicolás Maduro Moros). He is continuing as the president of Venezuela until date.
According to experts, American companies shared a lot of the resultant pain from the US sanctions, while non-American companies were able to profit by filling the gaps created. The US Congress dealt with growing complaints from the domestic business by legislation subjecting foreign companies to the same penalties for trading with Cuba. In a second 1996 Act, sanctions on Iran’s – and Libya’s – energy sectors were extended to include and enforce compliance by all international companies. This was the beginning of highly contentious “extraterritorial” or “secondary” sanctions.
The European Union (EU), coerced by the Americans, had enough clout to stand up to them. It warned that they would initiate a dispute procedure in the WTO (World Trade Organization) which most believed the EU would win.
By the turn of the century, OFAC, without abandoning the blunt weapon of embargoes, was moving on to sectoral sanctions, focusing on technology and finance, applied now to Iran. The US was playing to its strengths, in particular the dominant role of the dollar in global financial services. Companies and individuals in so-called pariah countries were put on a Specially Designated Nationals (SDN) list barring them from doing business – in dollars – with the United States.
In 2012, under strong US pressure, SWIFT (Society for Worldwide Interbank Financial Telecommunications), the over 11,000 strong cooperative networks for international payments with its, today’s US$5 trillion worth of transactions daily, 40 percent conducted in dollars, cut off Iranian banks.
When the Ukraine-Russia war began, the United States quickly opted for a series of sanctions targeting companies and individuals in Russia, including several state entities, which was followed by similar sanctions imposed by Britain and European nations. This time, most possibly those sanctions are going to backfire. A large number of countries, including India are already walking out of the dollarized gallows and establishing trades in alternative currency. China immediately began developing its own financial service, CIPS (Cross-Border Interbank Payment System), for international payments in Chinese renminbi. After its launch in 2015, CIPS attracted not only HSBC and Standard Chartered but also Deutsche Bank, Citi and BNP Paribas, the French investment banking group.
In January 2023 Russia and Iran joined up to create their own payments network, after SWIFT excluded some important Russian banks. The sanctioned targets were hitting back.
Agathe Demarais indicates in Backfire that the growth of cryptocurrencies is providing opportunities for sanctions-proof banking. China issued its own state-backed cryptocurrency in 2019, the digital renminbi. Today some 300 million Chinese citizens use mobile phones for such accounts, thus creating another doorway to comprehensive government surveillance. Chinese leadership now appears to be aiming at total control of the country’s financial system by displacing its two big tech firms, Alibaba and WePay, in the field of digital payments.
China’s Belt and Road Initiative (BRI), its extensive investment in trade and infrastructure in Africa, its role in the global South’s association of big economies, BRICS, leaves little doubt which bloc will eventually incorporate the most States. One brake on such “decoupling” is the crucial role of semiconductors and microchips in all economies and in military-industrial complexes. China controls 80 percent of the production/refining of the world’s vital rare earths, used in the semiconductors present in a vast array of modern appliances. An F-35 fighter jet requires 417 kilograms of these metals.
Due to the Ukraine war and Western sanctions on Russia and Russians, a multipolar world order is already taking shape, while large number of nations have started walking out of dollarized gallows. While comparatively weaker nations like Cuba or Venezuela had successfully resisted the consequences of sanctions, it can be easily anticipated that mighty nations like China, Russia, and India and wealthy nations in the Middle East in particular shall not only be able to resist those sanctions imposed by the US and its Western allies, these countries will actually formulate an alternative financial system thus liberating most of the countries in the world from the gallows of dollarization.
Until now, we do not know the final result or consequence of the Ukraine war. We really do not know if this war will lead to the Third World War or a nuclear war. What we certainly know by now is – this war and subsequent sanctions have caused tremendous sufferings and economic challenges to most of the countries in the world – including Bangladesh. Now those affected nations, who have nothing to do with Russia’s war against Ukraine – are under compulsion looking for alternatives. World is walking out of dollarization gallows. New world order is taking shape very fast. And most definitely, the Lord of the ring of a unipolar world – the United States is yet to realize – their throne of pride has started decaying. Absolute global dominance of the United States is already wrecked.
