Without diplomatic carrots, economic sanctions less likely to work

Author: Ken Heydon, LSE

There is a paradox with economic sanctions. They tend to command widespread support within the sanctioning country yet frequently fail to change the behaviour of the targeted country.

Despite twenty years of sanctions, North Korea can now make a nuclear strike anywhere within the United States. It also supplied infantry rockets and missiles to the Russian private military group Wagner in November 2022.

The unprecedented campaign of sanctions aimed at crippling Russia — the world’s eleventh biggest economy — may have helped deny Russian President Vladimir Putin the early victory he expected in Ukraine but has failed to change his behaviour.

Sanctions are likely to fail when a combination of conditions appear. The effectiveness of sanctions can be undermined by the targeted country’s ability, through market power, to bypass sanctions while imposing considerable economic pain on the sender. Unilateral sanctions are much harder to implement.

The likelihood of successful sanctions decreases further when the targeted country — likely, in the history of sanctions, to be an authoritarian regime — has a high pain threshold. A targeted country with a high expectation of continuing tension will avoid making sanctions concessions that would compromise future negotiating flexibility.

Two of these conditions apply in the case of North Korea. All three apply in the case of Russia, as seen in the havoc created within international energy and grain markets. These conditions apply to an even greater extent to China, given its dominant role in the world economy and the autocratic rule of Chinese President Xi Jinping.

But these vulnerabilities also provide clues as to how to make sanctions work better. The self-harm endured by sanctioning countries can be seen as the just price to pay for the normative gains in social and political freedom sought by sanctions. But for sanctioning countries, it is advantageous if the duration of harm can be shortened by making sanctions more expeditious.

This requires giving the citizens of the targeted regime a stronger voice to lower the regime’s pain threshold. This strategy is at play in foreign funding of the virtual private networks (VPNs) used by nearly half of young Russians. The sanctioning country then needs to reduce its dependence on the targeted country’s suppliers, like Germany’s development of a vast new liquefied natural gas import infrastructure at Wilhelmshaven.

Raising the effectiveness of sanctions importantly requires the targeted country to expect an end to prolonged conflict. Combining sanctions with classic diplomacy, using carrots as well as sticks and proceeding multilaterally is the best way to achieve this objective. This worked in the early 2000s when the United States and its allies used a mix of sanctions and financial inducements to persuade former Libyan leader Muammar Gaddafi to end his weapons of mass destruction program and stop funding terrorism.

Carrots of diplomatic flexibility — together with a clear commitment to lift sanctions when agreed benchmarks are met — must be used in negotiations to end some of the contemporary acts of aggression.

A commitment by Ukraine and its Western allies that Ukraine will remain a neutral state may be key in ending the Russia–Ukraine war. This would need to be combined with a number of undertakings that were called for by the United States and its G7 allies in October 2022. These include ensuring Ukraine’s recovery and reconstruction, respecting the UN Charter’s protection of territorial integrity and safeguarding Ukraine’s ability to defend itself in the future. This would be in exchange for de-escalation by Russia and negotiation over the territories it seized.

In Xinjiang, the provision of multilateral aid flows into the region should continue with careful due diligence, to avoid episodes like the World Bank’s funding of so-called ‘vocational schools’ for Uyghurs in 2019. Outside auditors could be appointed to review evidence of forced labour and give the green light, where appropriate, to selected supply chains, such as those involved in producing the nitrogen heterocyclic compounds used in cancer drugs.

North Korea may be persuaded by humanitarian aid, COVID-19 vaccines and a commitment to medium-term Western infrastructure investment in the energy and transport network development. The latter would build on North Korean Leader Kim Jong-un’s encouragement of entrepreneurial groups and the lapsed deal between North Korea and former US president Donald Trump in 2019 when Kim offered to dismantle his main nuclear complex at Yongbyon in return for sanctions relief.

Each of these cases is crucial individually, but there is a broader challenge. With democracy in steady decline, and without a change of tack resort to economic sanctions is likely to increase. The danger is that countries will seek to reduce their vulnerability against sanctions or asymmetric interdependence by pursuing self-sufficiency.

Historian Nicholas Mulder has suggested that as countries that consider themselves vulnerable to sanctions progressively withdraw from the world economy, their pursuit of autarky and other countries’ search for workable sanctions will see them become ‘locked in an escalatory spiral’.

The case for Western leaders making multilateral economic sanctions more expeditious and effective is thus twofold. Aside from fostering peace and human rights, sanctions should also avoid further dismantling the globalisation that has underpinned three decades of international growth and development. The need for the carrots of classic diplomacy to help resolve the paradox of sanctions has never been more pressing.

Ken Heydon is a former Australian trade official and senior member of the OECD secretariat, and Visiting Fellow at the London School of Economics and Political Science.

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