Do we know enough about Sanctions? What Changes have been Witnessed in the International Environment?

Do we know enough about Sanctions? What Changes have been Witnessed in the International Environment?

At EIMF we endeavour to offer ongoing professional knowhow with each unique area having its own expert to deliver the specific topic. This time we welcome Adonis Pegasiou to our team of expert trainers, who begins by sharing his article so as to understand the importance of understanding Sanctions.  Adonis will be offering further insight through a workshop on International Economic Sanctions, being offered both in Nicosia and Limassol.

The importance of understanding sanctions in a constantly changing international environment

Sanctions, as a foreign policy tool, have become a very topical issue as states have utilised them increasingly and in an independent manner, in an attempt to exert pressure on other parties, avoiding the use of military action, so as to change their behaviour/policies.

Importantly, the nature of sanctions applied today has evolved from the traditional comprehensive approach, mainly because of the unintended dire consequences this approach had on the wider society of the targeted country.  Instead, a ‘smart approach’ is now more commonly adopted, in an attempt to increase effectiveness by targeting elites and the culpable actors, in relation to possible violations or other unwanted practices noted. At the same time, humanitarian repercussions are controlled, and any collateral damage is limited.

The US stands out as one of the countries that has extended the use of sanctions significantly. In the last two years this has not necessarily been done in coordination with its major trading partners, as was the case during the Obama administration, but by acting independently.  For example, in May 2018, President Trump decided the withdrawal of the US from the Joint Comprehensive Plan of Action (JCPOA) and issued a National Security Presidential Memorandum (NSPM) directing the relevant national agencies to reinstate sanctions against Iran that were suspended under the JCPOA in January 2016. Notably, the EU did not approve of this development. Even more, Europeans are overall more cautious on the sanctions ordered by the US targeting Russian individuals and enterprises, given, among other, the energy dependence on Russian natural gas and certain common projects (e.g. the Nord Stream 2 Pipeline) and also the traditional business relations certain EU member states have with Russia.

The US conscious stance to formulate its sanction policy independently and without prior consultation with ally countries, effectively reduces the possibility of success of the sanctions ordered. As a result, the US may apply added pressure on third parties, through the use ‘secondary sanctions’, in order to secure compliance with its policies, i.e. targeting third party activities with the sanctioned country (e.g. Iran or Russia) by threatening to cut-off the third party’s access to the sanctioning country (i.e. the US). The US is in a position to do so, not only because of its military might and commercial power, but also because of the importance of its currency in the modern globalised financial world. Thus, as long as the threat of access-denial to the dollar looms, then the US will be more effective in gathering support for its sanction policy.

Worryingly, the current uncertain and tense international relations environment that has seen the increasing use of sanctions, seems difficult to reverse. The US appears determined to pursue further the imposition of sanctions, by expanding its list to include additional individuals and enterprises, increasing at the same time the number of countries affected. This allows little room for manoeuvre for relevant stakeholders in the economies of third countries which are highly dependent on the provision of financial, commercial and other services that entail dollar transactions and/or may have other direct or indirect relations with the US.

Consequently, this new reality requires state and private institutions to follow developments in international relations and understand the politics behind decision-making mechanisms that determine sanctions, in order to set their long-term strategy. They also need to comprehend the repercussions from sanctions, both at the international and national level, and also, importantly, to be adequately prepared to comply with increasing requirements by setting up the necessary monitoring mechanisms that will safeguard them from any possible costly violations. This carries an additional burden for any organisation that wishes to act prudently but it is necessary in order to proactively mitigate the risk of non-compliance stemming from this constantly changing operational framework.

We offer the opportunity to consider more on International Economic Sanctions, view our courses here.