DEVELOPMENT ECONOMICS
AND POLICY
Series edited by Joachim von Braun,
Ulrike Grote and Manfred Zeller
Vol. 81
1 Sanctions: Useful toys of diplomacy or disastrous weapons of mass destruction?
“The Security Council [decides] that all States shall prevent [the] import into their territories of all commodities and products originating in the Federal Republic of Yugoslavia (Serbia and Montenegro) exported therefrom after the date of the present resolution […].”
—UNSC Resolution 757, 1992-05-30
Belgrade, May 1992: The United Nations Security Council (UNSC) just had announced to impose the most comprehensive economic sanctions on the Federal Republic of Yugoslavia (FRY) it ever imposed. These sanctions should end Slobodan Milosevic’s involvement in the war in Bosnia-Herzegovina. The ban includes import, export, financial transactions, and even academic and cultural cooperation and Yugoslavia’s participation in international sports events.12 These sanctions are described as “the most rigorous implementation effort ever attempted in the history of sanctions.”13
Years later, scholars write that the sanctions significantly strengthened Milosevic and his clique, they increased his budget, his power and the overall level of repression,14 and they “undercut democratic reform movements.”15 A powerful criminal class with ties to the regime emerged which could benefit from the black market. While the middle class impoverished and half of the population slipped below the poverty level, 5 percent of the population have become enormously rich.16 Sanctions “reflect an effort to manipulate the vulnerabilities that come from economic interdependence, but sanctions can unintentionally foster clandestine forms of interdependence.”17 The literature on sanctions against Yugoslavia found three reasons for this surprising outcome:
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First of all, the sanctions unintentionally boosted a thriving black market, that gave rise to a powerful criminal class with ties to the regime. Smugglers controlled the trade in oil and other goods.18 Milosevic’s son even became the smuggling head in one border area.19 Smuggling was seen as a patriotic duty by the regime and publicly praised. It led to a criminalizing of society which didn’t end with the fall of Milosevic – the criminalized collateral damage of sanctions had a long-lasting, post-sanctions legacy.20
Second, the disruption of trade benefited state-owned enterprises, which could sell their products independently from their quality. The economic (-political) elite had an interest in maintaining the sanctions.21 The regime was able to gain a large share of sanctions rents, not only through criminal activities but also through centralizing the distribution of goods. These sanctions rents “might be smaller than the earnings from legitimate pre-sanctions trade but they have the advantage of accruing directly to the regime and its immediate circle of supporters.”22 Furthermore, the regime systematically destroyed and appropriated properties by minorities and citizens that were not part of the winning coalition.23
And third, the sanctions enabled Milosevic to blame others for his economic mismanagement and to increase Serbian nationalism, which resulted in a pro-regime rally around the flag.24 The Milosevic regime became “a mixture of communist heritage and a nationalist mafia that monopolized the still existing resources.”25
What were the political results? The sanctions weakened the opposition forces: Middle-class liberals and students left the country. Sanctions on academic cooperation hurt intellectuals. Independent media were isolated. The sanctions strengthened the regime: The enemy abroad lead to hardline nationalism. The economic-political elite gained the sanctions rents. Powerful criminal gangs with ties to the apparatus rose with a long legacy.26 The economic sanctions against ←30 | 31→Yugoslavia “strengthened the very power structures that it sought to challenge, and weakened or even destroyed the civil society and political opposition.”27
“Anytime you see a statement coming out of the government, just remember there’s a rat’s nest of people fighting underneath the surface.”
—K. Harris on the Iranian leadership28
In July 2015, the Joint Comprehensive Plan of Action was signed, an agreement aimed at ending the nuclear weapons program of the Islamic Republic of Iran. Also, it partly ended the economic sanctions imposed by the United Nations Security Council. Regarding this policy outcome, the sanctions against Iran can be evaluated as a success story, contradicting the pessimist narrative of ineffective sanctions.29 However, the economic sanctions left their mark on Iranian politics and society: Sanctions enhanced a process of autocratization that started already before the imposition of sanctions. The ruling elite around president Ahmadinejad and his military clique used the absence of external actors to redistribute the resources and to accumulate wealth and power. The business portfolio which his clique grabbed ranged from oil fields to the monopoly of telecommunication. Iran was described as transforming from theocracy to military dictatorship.30 How could that happen?
The sanctions were imposed in 2006. Iran’s announcement of the nuclear program convinced the Security Council (UNSC) of the United Nations to apply economic sanctions, consisting of travel bans, an arms embargo, freezing of assets and commodity boycotts.31 Both the U.S. and the EU executed additional unilateral sanctions in various fields, especially in the energy (oil and gas), transportation, and financial sector (exclusion from SWIFT), which came close to a full-trade embargo.32 Four key factors indicated a high impact of economic sanctions in Iran: a significant pre-sanction trade linkage, limited substitution possibilities for sanctioned goods, unexpected sanctions scale, and unexpected SWIFT sanctions.33