Vital Interests: I would like to discuss the use of economic sanctions as a tool of statecraft. You wrote a book a number of years ago called The Sanctions Paradox which provides some of the first insights on how sanctions are applied and their effectiveness. Here we are in 2020 with sanctions now playing a major role in American foreign policy. Can you begin with an overview of the rationale for imposing sanctions and how they work?

Daniel Drezner: I wrote a book, as you said, called The Sanctions Paradox more than 20 years ago.The argument then was relatively simple, which was that there is truly a paradox when it comes to the use of economic statecraft.  Basically, with sanctions you talk about “senders,” meaning countries that are eager to or can impose sanctions, and “targets” are the countries that are sanctioned. Essentially, the paradox is that senders will be most eager to sanction targets in precisely the instances in which they are least likely to extract significant concessions.

Essentially, the variable that I say drives a lot of this behavior at the time was expectations of future conflict. Simply put, when two countries are adversaries, the sender is going to be very willing to sanction. The problem is that, for the very same reasons, the target is going to be extremely reluctant to make any concessions, because they know that any concessions they make in the present can undercut their bargaining position, as well as their reputation, in the future. If they anticipate frequent conflicts, they're not going to want to acquiesce in the present.

On the other hand, countries will be much more reluctant to sanction allies because they don't necessarily care as much about relative gains. However, if they do meet that threshold, those are the instances in which sanctions could potentially lead to significant concessions. I took a look at the 20th-century history of sanctions and I do think this largely held up. There are obviously plenty of other arguments out there about the prerequisites and the dynamics of economic statecraft, but that was my argument that I made in the 1999 book.

What's happened since then, I think, are a couple of things that haven't necessarily changed my argument, but have changed the permissive conditions under which sanctions can be used. First, you've seen an evolution in financial statecraft. Most 20th-century sanctions were trade-based. It was some sort of embargo, you were trying to disrupt some exchange of goods and services across borders.

One of the interesting effects of that was that, regardless of what you thought about sanctions, generally speaking, the private sector cut against trade sanctions. Anytime you impose economic sanctions, you block what would otherwise be a perfectly ordinary economic activity, which means you're incentivizing corruption and black markets. Peter Andreas particularly talks about this point. It basically always undercuts the effectiveness of trade sanctions.

On the other hand, if you impose financial sanctions, meaning what you threaten to do is cut off a country's access to capital including private individuals access to capital held overseas or disrupt financial networks by - in the case of the United States - threatening their access to the dollar essentially. It has a reverse effect, which is the private sector actually winds up amplifying the sanctions because as a general rule, the financial sector is pretty risk averse when it comes to these kinds of things.

As a result, private entities wind up actually not just not doing or conducting business with sanctioned entities, but they wind up usually taking an abundance of caution approach to this, that’s why the sanctions wind up getting amplified. One thing that's changed, I think, over the last 20 years, is that the potency of economic sanctions, particularly those imposed by the United States, has increased significantly. Even my theory would say, the costlier the sanctions, presumably the more you're going to be able to extract in terms of concessions.

The second element of this, and this is tied to financial statecraft but there are other examples of this as well, is that essentially the United States has become so adroit at exploiting its centrality in financial and other economic networks that the cost of imposing sanctions has gone down, at least in the short term. Which is to say the US can muck around with SWIFT or with the dollar clearing account and there aren't necessarily repercussions because it's not like the Europeans are trying to necessarily diversify away from the dollar now, even if they want to, because these networks are extremely hard to alter once they're embedded.

Essentially, what this has done is lowered the threshold for which the United States will be willing to impose sanctions. Both of these moves contribute to this. The US can now impose sanctions that impose greater costs on the target, and it can impose sanctions that impose fewer costs on itself. Unsurprisingly, you've seen a massive increase in the number of sanctions that are imposed. I don't think it's actually changed the pattern in terms of concessions. That's actually stayed relatively consistent. There's no denying that the US has been far more eager to impose sanctions than they were 20 years ago.

20 years ago, when I wrote The Sanctions Paradox, I think I was seen as a relative hawk when it came to the imposition of sanctions. The common consensus at the time was, "Well, they don't work. They don't work." I said, "Well, they work under some circumstances."Twenty years later, that's still my take on it. But everyone else is like, "Sanctions are great. We should totally use them."

VI: And the United States definitely is.

Daniel Drezner: Yes. Now I feel like I can say, "Whoa, slow down here. You're being way too enthusiastic about this."

VI: The U.S. Department of Treasury lists 31 different sanction protocols. We hear about some of them, but many we have no idea about. Some have been in place for quite some time. There have been sanctions on Cuba for over forty years. How effective are long-term sanctions?

Daniel Drezner: Well, this gets to the reason why you impose sanctions in the first place. Normally, we think of sanctions as an act of economic coercion. There's a quid pro quo involved. If you're trying to punish another actor, the implication is, if that actor makes a concession, then you will lift the sanctions. To be fair, that's not always the case. There are instances where the US is imposing sanctions, mainly because they want a concession but also because they view it as a long-term form of economic containment where they're trying to weaken the capabilities of the other actor.

This is certainly the case with, for example, a lot of sanctions involving non-proliferation, where you're imposing sanctions hopefully to have the country give up its WMD program. Another purpose of them, rather than punishment, is denial which is when you're hoping to actually literally prevent them from being able to develop these programs in the first place. Not that that always works.

VI: Iran being the major example here.

Daniel Drezner: Right. The other complicating factor is when the purpose of the sanctions is to bring about regime change because that creates additional complications. If you're trying to sanction a country where the goal is wholesale regime change, you can't simultaneously bargain with that country either. It's not coercive bargaining anymore. It's hoping that you're leading to regime collapse.

You could argue that explained a lot of what US policy was towards Iran, I would say from the late 1980s to the Obama administration, basically. The perspective of both the Clinton and the Bush administrations, at the time, was that sanctions were to impose regime change. Similarly, with the sanctions on Iraq after 1991. The moment you decide, "No, we're not going to engage in regime change," which is what happened in the case of Iran with Obama, then presumably you're able to bargain with the existing regime, but that also obviously creates complications.

VI: Is that the case with Iran these days? Certainly, the Trump administration’s policy of “maximum pressure” is pretty severe?

Daniel Drezner: Yes. The very phrase “maximum pressure” indicates that the Trump administration is not engaging in coercive bargaining, which is to say that the maximum pressure campaigns against Venezuela and Iran are clearly designed to foment regime change. Ostensibly, for example, with the case of Iran, I think Secretary of State Pompeo listed something like 12 demands that Iran had to meet in order to have the sanctions lifted. Of those 12, I think one of them might have been to cure cancer, I'm not entirely sure. These concessions are so outsized that there would be no regime in Iran that would make them. The goals of those sanctions are to cause the regime to collapse.

VI: Is this all done just by government pronouncement? For example, with North Korea, there have been many long standing sanctions in place but since  President Trump got into a dialogue with the leader Kim Jong-um, sanctions are somewhat downplayed.

Daniel Drezner: Nothing has changed. On the books, nothing has changed in terms of the sanctions. In actuality, President Trump, by meeting with Kim three times and by talking about their good relationship has not necessarily signaled that the sanctions are being lifted, but you do see China and Russia not really honoring the UN sanctions and allowing for widespread under-the-radar activity in terms of those dealing with North Korea.

VI: Russia is another country where sanctions have been imposed in a number of instances - for human rights violations, the annexation of Crimea, because of the alleged interference with the 2016 elections. While these Russian sanctions have been announced, are they actually being enforced given President Trump’s go-easy attitude on Russia?

Daniel Drezner: By and large, the Russian sanctions have been imposed. This shows a couple of things about the way that sanctions have evolved. The first is that, increasingly, when you see sanctions against another country, it's not against another country, per se, but it's against entities within that country, either individuals or government enterprises or specific sectors. The U.S. and Russia still engage in trade, for example. There are certain areas that are circumscribed or fall under economic sanctions, and those by and large are being imposed.

The second thing it highlights is the source of sanctions. There are really two sources. The first is Congress that can impose sanctions by passing a law that gets signed by the President. Most of that, and you've seen that in the case of Russia obviously, with examples like the Magnitsky Act and so forth. In those instances, most of those sanctions regimes also give the President something that's usually a national interest waiver of some kind, where the President can decide, “Okay, I know under law I’m supposed to impose the sanctions, but in the national interest, I'm going to waive them for this following period of time,” this is usually indefinitely because it serves the national interest of the United States.

The other route through which sanctions can be imposed, and this is much more common now, is through executive power. The President has a number of forms of presidential authority through which he can impose sanctions. The most broad-based, the IEEPA, the International Emergency Economic Powers Act, interestingly enough is an extension of the 1976 National Emergencies Act that has caused so much controversy in terms of Trump allocating funds for the Wall on the southern border.

IEEPA, frankly, gives the president unchecked authority to declare an emergency and use that to justify imposing sanctions on other countries. It was not used all that often, but it has been and, obviously, Trump in particular certainly threatens to use it at various times. This is where we get to the question of what do you define as a sanction. For example, Trump using Section 232 of the 1916 Trade Act, which is a national security justification for imposing the tariffs on steel and aluminum, you can certainly view those in some ways as a form of sanction.

VI: Let’s talk about sanction enforcement mechanisms.  Certainly many of the economic sanctions are administered by the Treasury Department.  Are there other government agencies like the State Department, Agriculture, Commerce, or Energy coordinating the monitoring and enforcement of sanctions? 

Daniel Drezner: It depends on the source of the sanction. Let's say you're suspending foreign aid or suspending other aid packages, then a lot of the agencies you mentioned suddenly kick in, but the principal U.S. agency that handles sanctions is a unit within the Treasury Department called OFAC, the Office of Foreign Assets Control. If you search U.S. sanctions, you will come to the OFAC website.

VI: Yes, that's where I found the list of sanctions.

Daniel Drezner: Essentially, OFAC informs banks within the United States and other financial entities, "Look, do not do business with the following entities due to laws or public orders that are issued." If U.S. financial actors are caught violating those sanctions, they are subject to significant fines. Fines potentially can be upwards of more than a billion dollars.

VI: It's not a criminal act to violate sanctions?  It's just a financial penalty, but quite steep, as you have stated.

Daniel Drezner: My legal expertise is limited here because I'm not sure if it's criminal as well as a civil penalty. To my knowledge, no financial actors have been prosecuted or jailed for sanctions violations.

There's actually been a shift over time in terms of how OFAC has dealt with violations. It used to be a scattershot imposition of levies and fines on U.S. financial actors that were caught violating the sanctions. Treasury and the intelligence agencies have financial intelligence units, they can potentially track these things.

Beginning with the Obama administration a strategy developed that was referred to as “whale hunting”, which is to say that OFAC went after firms that engaged in significant violations and publicly imposed significant fines. The purpose of that was clearly strategic; it was to send a message to the entire rest of the sectors impacted by sanctions with a clear message "Look, we will go after you."

VI: The United States Treasury and other agencies can put pressure on U.S. entities. What about the other countries, foreign entities that are doing business with sanctioned entities or individuals?

Daniel Drezner: First of all, sanctions are imposed multilaterally, which is the United States in concert with allies or under the aegis of the United Nations Security Council, or some other international body, that obviously they're imposing multilaterally. Even if the U.S. imposes sanctions unilaterally, if they're imposed particularly through the financial channel, because the dollar is absolutely necessary for global exchange, because almost every financial entity needs to have a corresponding banking account in the United States in order to be able to engage in international exchange because they need the dollars, the U.S. can impose sanctions extraterritorially.

You saw this in terms of the U.S. pressure on SWIFT for example - the international messaging and clearing service - to freeze out Iranian financial authorities. These kinds of things are often called secondary sanctions, where you're not necessarily sanctioning the principal target, what you're doing is sanctioning other actors that might do business with that target with the idea of trying to force them into line as well.

VI: Let's talk about the targets of sanctions. Countries are targeted by American sanctions in various ways, either through the freezing of assets of certain individuals, or when the United States goes after concerns or firms that are doing business internationally that U.S. authorities can reach. How do target countries react? Iran has often said that United States sanctions are an act of war. 

Daniel Drezner: It varies. Certainly comprehensive economic embargoes are seen as only justifiable during times of war. That's one way to look at it. There's no denying that Trump's maximum pressure campaigns can be viewed through that lens. That said, it's worth remembering that the original popularity of economic sanctions comes about after the end of World War I, in the negotiation of the treaty of Versailles. Woodrow Wilson once described sanctions as the deadly peaceful side of remedy.

In other words, you view this as an alternative to use of force. Indeed one other reason you've seen sanctions rise in terms of popularity in the last 20 years in the United States is not just the increase in the potency of sanctions but rather the perceived diminishing utility of military statecraft. If you're not going to use force, then suddenly actors feel like they want to apply some pressure or rather resort to economic statecraft. The relationship between economic statecraft and war is a complicated one. Sometimes it's seen as clearly a prelude or an adjunct to it. Other times it's viewed as a substitute.

VI: The United States is certainly the lead actor in the sanctions arena but other countries have also picked up on the idea. China does some sanctioning, as do other countries. Is the use of sanctions a growing phenomenon?

Daniel Drezner: Oh, yes, sanctions are hot right now. You've increasingly seen it's not just the United States. China employs wide-ranging elements of economic statecraft, so does Russia. You're even seeing smaller countries, Japan for example. Korea has engaged in a tit-for-tat type of economic statecraft, Saudi Arabia has employed sanctions in a variety of ways. Indeed, one speculation I noted previously is that one reason you're seeing this proliferation is that countries like China and Russia actually have the resources to be able to impose sanctions which is not surprising, although their styles of doing so are very different.

For example, the United States' way of imposing sanctions is very explicit in terms of saying, "Here's the threat mechanism. There's a bureaucratic process to doing it," so and so forth. The Russians are also very explicit in terms of doing it. The Chinese are almost passive-aggressive when it comes to their sanctions, which is to say there are instances in which they've clearly been sanctioning, like imposing a rare earth embargo on Japan back in 2010 and yet they will deny that's what they've done. That's fascinating.

The other thing that's happening is that one begins to wonder whether or not the use of economic statecraft beyond the great powers is now viewed as a prestige move, which is to say, "See, we're powerful actors. We can impose sanctions even if they don't work."

VI: What about the United Nations? They also are a sanctioning body. Are sanctions an effective tool for them?

Daniel Drezner: This is where things get a little complicated. There's been a significant study of particularly post-cold war UN sanctions and the question of whether they work or not is a knotty one. It's not clear they work any better in terms of the target making concessions than, let's say, U.S. unilateral sanctions have. On the other hand, it is worth pointing this out, that it's assumed that the definition of sanctions working means - does the target comply?

There are other purposes of sanctions beyond that, among other things the enforcement of norms. For example, when the U.S. imposed sanctions on Russia after the country's annexation of Crimea, no one thought that Russia was going to give Crimea back to Ukraine. In that sense, they were always viewed as a failure, but another reason the sanctions were imposed was to set a precedent to say, "Look, you are violating someone else's Westphalian sovereignty. There have to be repercussions to that, not just so that you pay a price but also that other actors that are potentially thinking of similar kinds of moves see that a price will be paid." 

You can argue that, in that sense, the UN security council sanctions very often, even if they haven't necessarily immediately led to concessions, have presumably reinforced particular norms.

VI:  What about the ethics of sanctions? Critics of sanctions state that the people really get hurt,  not the governments, not the elites. It is the people who are deprived of critical essentials like adequate food and medicine. Human Rights advocates believe that the 40-year sanctions against  Cuba are a crime against humanity and have asked for a UN investigation. What about these arguments?

Daniel Drezner: It's a fair debate to have. Even more than the Cuba case, the Iraq case was really the one that brought this to light. It was clear that the Iraq sanctions themselves led to significant increases in infant mortality rates in Iraqi children. In some ways, you could argue the crystallizing moment for this was a 60 Minutes interview where Leslie Stahl basically asked Madeleine Albright if it was worth it for Iraqi children to die to stop Iraq from potentially having nuclear weapons. Madeleine Albright committed what is often referred to as a Kinsley gaffe, which is she told the truth, and she said, "Yes, it is."

There was already a fair amount of horror that was going on. You can argue, by the way, this is one of the things that actually led to the evolution of financial statecraft because, within the United Nations, there was so much revulsion at the comprehensive trade embargo that was imposed on Iraq after its 1990 invasion of Kuwait, that you saw the emergence of so-called smart sanctions.

Smart sanctions were designed to hurt elites rather than the population at large. They usually consider things like arms embargoes, travel bans, and assets seizures as financial statecraft. The truth is that the travel bans and the arms embargoes have had ambiguous effects at best. The financial statecraft that it turned out did actually impose a significant bite. It was thought that these sanctions might be seen as fair because, presumably, if you're imposing financial sanctions, by definition you're hurting actors that have bank accounts. There's a way in which financial sanctions should be better at hitting a target's elite rather than trade-based sanctions.

In actuality, based on some of the research I did for the Center for a New American Security, it's a little more muddled than that. The financial sanctions actually caused significant problems within the target economy in terms of increasing corruption, decreasing human development indicators and so on and so forth. In some ways, their potency is part of the issue here. That said, politically it would also be true that financial sanctions are viewed somehow as more ethical, I think, than trade-based sanctions -  whether as a point of fact that's correct or not is another question entirely.

VI: Asset freezing and seizing of assets of elites that have bank accounts that the United States can access was a major factor in the negotiations for the Iranian nuclear deal, the JCPOA. There were considerable seized Iranian assets under American control that were released as a condition of the agreement. This became a major controversy with critics of the JOPCA claiming the United States paid the Iranians billions of dollars as a subsidy for signing the treaty. The money was of course rightfully the legal assets of Iranians.

Daniel Drezner: Right. The political rhetoric is that we sent pallets of cash to Iran and we can't believe we gave them so much money. It was their money.

VI: Going forward, do you see sanctions being increasingly used and, if so, used correctly? Has resorting to sanctions now become a knee jerk reaction? When the Iraqi government stated "Yes, we would like American troops to leave our country," Trump immediately responded, "Well, if you do that, I'm going to throw sanctions on you that you won't forget for centuries."  Are we resorting to threats of sanctions against allies and friends when they adopt policies the United States does not approve of?

Daniel Drezner: The answer very simply is no, sanctions are not always appropriate. Sanctions are frequently being imposed in an unthinking and excessive manner and indeed constitute a growing problem, in terms of U.S. economic statecraft. In some ways, the issue is that the U.S. has been able to exploit and weaponize interdependence or asymmetric dependence by other actors on the United States. This is greatly a large number of actors that could potentially be under the threat of sanctions.

There are two issues going forward. The first is, as I said, none of this has changed the dynamics of when countries are likely to acquiesce or make any kind of compromise. So even though the U.S. has imposed a lot more sanctions, it hasn't necessarily extracted much more in the way of concessions. There are two deeper issues. The first is that these networks that I'm talking about, as I said, haven't necessarily caused countries to disrupt them yet, but there's going to be a moment at which the U.S. abuses these things to a point where, let's say, Europe decides they no longer need to be reliant on the dollar, and that can lead to a dramatic diminution of American power. We're just not there yet.

The second issue is that the U.S. is becoming incredibly prolific in imposing sanctions and awful at lifting them. That's a problem because if you're going to use sanctions as a coercive instrument, you have to also be able to signal that ,if you the target makes the following concession, we will respect that and lift the sanctions, and indeed the JCPOA is a good example of this.  But by going back on that, you now have actors that even if they're facing very punishing sanctions and might actually consider making some concessions to lift them, they also have to be asking themselves, "What is the credibility of the U.S. that they will actually lift them?"

In some cases, because they have congressional authorization, you're going to have to ask Congress to reverse them, and Congress loves sanctions way too much. This is one of the problems with both the Iran nuclear deal and the U.S. opening to Cuba under the Obama administration, they were done through executive action only, which means the next president, if they so choose, could reverse it, which is exactly what Trump did.

VI:  Dan, this has been a  good conversation.You have given us a clear description of how sanctions have evolved, how they're being used today, and some insights on their effectiveness and how they should be considered and enforced. Thanks again for participating in the Vital Interests forum. 

Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University. He is a nonresident senior fellow at the Brookings Institution, and a contributing editor at The Washington Post. Prior to joining The Fletcher School, he taught at the University of Chicago and the University of Colorado at Boulder. He has previously held positions with Civic Education Project, the RAND Corporation and the U.S. Department of the Treasury. Ptofessor Drezner has written five books, including “All Politics is Global” and “Theories of International Politics and Zombies.” His most recent is “The Toddler in Chief: What Donald Trump Teaches Us about the Modern Presidency.”