Busted Sanctions
Explaining Why Economic Sanctions Fail
Bryan R. Early

BUY THIS BOOK


Introduction

Why Busted Sanctions Lead to Broken Sanctions Policies

THE ISLAMIC REPUBLIC OF IRAN HAS BEEN SUBJECT TO U.S. economic sanctions since 1979, but only in recent years has the U.S. government been really successful in obtaining multilateral support for its efforts to economically isolate Iran. Most notably, in the spring of 2012, the European Union (EU) blocked Iran from employing the Belgium-based SWIFT (Society for Worldwide Interbank Financial Telecommunication) network used by most financial institutions for their international financial transactions. This move, made in concert with aggressive U.S. efforts to isolate Iran’s financial system, was designed to make it more difficult for Iran to repatriate the payments for its fossil fuel exports.1 Denied access to the international financial system, Iran turned to using a commodity that had universal value and did not require accessing the international financial system to convert: gold. In the case of Turkey, Iran began selling its natural gas to the country in return for Turkish lira that it kept in local bank accounts. Iranians then used these funds to buy gold bullion, the trade of which was not subject to international sanctions. Turkish gold exports to Iran subsequently ballooned in the summer of 2012 and reached $1.8 billion in July. In response to the negative publicity these overt transactions garnered, a less obvious method for delivering the gold to Iran was sought. Dubai, in the United Arab Emirates (UAE), was the perfect middleman through which to launder such transactions. Dubai had already served as the locus for sanctions-busting activities on Iran’s behalf for the better part of thirty years and had the connections in place to immediately start facilitating the transactions. There was no better venue in the world to carry out such a scheme.

From July to August, Turkish gold exports to the UAE exploded from $7 million to $1.9 billion. The thirty-six tons of gold that Turkey shipped to the UAE in August comprised over 82 percent of Turkish total gold exports that month.2 Yet how that gold was shipped to the UAE is even more remarkable. Under UAE customs rules, individuals can legally import up to fifty kilograms of gold into the country in a single visit. And so a plan was hatched in which individual couriers—acting on behalf of firms registered in Turkey—would transport small shipments of Turkish gold to the UAE in perfect accordance with the country’s laws. Transporting that amount of gold and in shipments that small required couriers to take hundreds of individual trips to Dubai. According to Reuters, most couriers traveled with their gold simply stowed away in their carry-on luggage. As further proof, the story cites the fact that $1.45 billion of Turkey’s August gold exports “were shipped through the customs office at Ataturk airport’s passenger lounge.”3 Once in the UAE, the gold effectively vanished. With over 8,000 Iranian-owned businesses operating out of Dubai and over 200 ships leaving daily for Iran, almost anything that can be brought into Dubai can be clandestinely shipped out again to Iran. These transactions continued throughout the fall of 2012 and the beginning of 2013—motivating the U.S. government to adopt new sanctions policies targeting entities that trade in precious metals with Iran. Although this legislation curbed Turkey’s participation in this “gas for gold” scheme, it certainly won’t stop Iran from finding new ways to circumvent the sanctions imposed against it.4

This case is fascinating for a number of reasons. First, it is illustrative of the cat-and-mouse game that has evolved between the United States and Iran with respect to the former’s sanctions. Iranians have become world-class experts at devising ways of circumventing or undercutting the U.S. and international economic sanctions imposed against it.5 These skills have significantly contributed to the country’s ability to survive U.S. sanctions for the past thirty-plus years. Second, the transactions highlight the critical role that third parties to sanctions disputes can play in undercutting sanctioning efforts. Via their policies, both Turkey and the UAE undercut the effectiveness of the U.S. and EU financial sanctions against Iran. And, finally, the identities of the third parties involved in conducting the sanctions-busting transactions are also intriguing. The UAE has been a close military ally of the United States since 1994, and Turkey is a NATO ally of the United States and most of the EU’s members. Their involvement in deliberately undermining their allies’ sanctioning efforts against Iran represents an intriguing puzzle in need of an explanation.

The UAE gained international attention for its illicit trade relationship with Iran when it was revealed that the infamous A. Q. Khan proliferation network used Dubai as a central hub for proliferating sensitive nuclear technologies to Iran in the early 2000s.6 In delving more deeply into the UAE’s commercial relationship with Iran, it is clear that the Khan network’s activities were not an isolated exception. The UAE had been a leading venue for conducting sanctions-busting trade with Iran since the U.S. government had first sanctioned it. In many ways, Dubai’s explosive growth as the Persian Gulf’s leading trade hub was linked to its role as Iran’s primary entrepôt for circumventing the sanctions imposed against it. When the UAE formally forged a military alliance with the United States in 1994, the UAE’s sanctions-busting activities only accelerated further. All the U.S. efforts at making its sanctions against Iran more stringent during the 1990s appeared only to increase the profits reaped by the Emiratis and added little to the pressure felt by the Iranian regime. During this period, American and Iranian firms flocked to Dubai to continue doing business with one another. All this background information became very real for me when I visited Dubai in 2005 and strolled by the scores of dhows docked alongside Dubai’s Persian Sea inlet that were stacked high with American products destined for Iran.

There has been surprisingly little research focusing on the causes and consequences of sanctions-busting behavior, especially given its intuitive links to the failure of sanctioning efforts. In observing the states involved in various sanctions-busting cases, there appear to be two distinct profiles for the types of sanctions-busting activities taking place. The first type, as in the UAE–Iran case, appears driven by profit-seeking behavior and relies primarily on the use of international trade. In contrast, the second type of sanctions-busting relationship appears motivated mainly by politics and employs foreign aid. The massive aid packages that the Soviet Union provided to Cuba to undercut the U.S. sanctioning effort against the country during the Cold War exemplify this type of sanctions busting. Although the motives and methods associated with the two types of sanctions busting are different, both appear capable of undercutting the effectiveness of U.S. sanctioning efforts. This book offers the first comprehensive explanation of why both types of sanctions busters emerge and demonstrates the corrosive consequences each one has on the effectiveness of sanctioning efforts.

A clear need exists for a better understanding of how third-party states contribute to the failure of U.S. sanctions policies. The findings of this book should be of interest to students of foreign policy and economic statecraft but also to policy makers charged with the responsibilities of overseeing U.S. economic sanctions policies. Unfortunately, there are no easy solutions to the challenges posed by sanctions busting. Yet the findings from this book and recent reforms in U.S. sanctions policies suggest that U.S. policy makers can become much more effective at addressing the challenges it poses.

U.S. Foreign Policy and Economic Sanctions: A Fatal Attraction?

Since World War II, the United States has played an active leading role in international politics. The United States’ enduring foreign policy interests have been in enhancing the country’s national security, while advancing U.S. interests abroad and promoting economic prosperity at home.7 The United States’ leadership role in the West during the Cold War, its emergence as the lone superpower following the Cold War’s conclusion, and its seat on the UN Security Council have meant that the United States has been politically engaged all over the world. Its foreign policy interests also extend across a range of policy areas, such as economic, environmental, human rights, and international security issues. In the post-WWII era, the United States has been one of only a handful of countries that has possessed both foreign policy interests that extend globally and the capacity to act on them.

With the United States’ preponderance of military and economic power, its policy makers have a wide range of policy options available to them with which to pursue American foreign policy interests. U.S. policy makers can pursue policies within the diplomatic, military, or economic realms and employ coercive or incentives-based strategies.8 In the diplomatic realm, for example, U.S. policy makers can extend foreign governments praise and legitimacy, or, alternatively, they can use public admonishment to tarnish other governments’ international reputations. Militarily, U.S. policy makers can offer security guarantees or sell weapons to foreign governments as part of incentives-based strategies, or they can leverage U.S. military power to compel countries into altering their behaviors as part of coercive ones. The final class of policies comprises what David Baldwin refers to as economic statecraft.9 Such policies seek to influence a target’s economic well-being as a means of affecting its behavior. The provision of foreign aid constitutes an incentives-based approach toward using economic statecraft, whereas economic sanctions represent a coercive approach. Although a number of these policy options can often be employed in response to a given foreign policy dilemma, the attendant costs and benefits of each approach affect which option policy makers select.10

More than in any other country in the world, economic sanctions have served as the policy instrument of choice for U.S. policy makers. Economic sanctions specifically refer to restrictions that policy makers place on their countries’ commerce with foreign states, firms, or individuals to compel a change in their behavior. They tend to be used in response to objectionable foreign behaviors that require a more assertive response than diplomacy alone but in which the use of military force is undesirable. Both of the leading databases that track the global use of economic sanctions indicate that the United States has employed economic sanctions more than any other country in the world—and by a large margin.11

A number of reasons exist for why the United States relies so heavily on economic sanctions despite their poor performance. It has long been known in academic and policy circles that economic sanctions have a relatively poor track record of success—achieving their goals only around 23 to 34 percent of the time.12 Given its preponderance of economic power, though, the United States can more easily afford to absorb the costs of imposing sanctions and can better leverage sanctions in exploiting other countries’ dependence on U.S. markets, U.S. capital, and the U.S. financial system. The United States is thus advantaged in using sanctions over most other countries with smaller economies. The United States’ active involvement in global politics and its preponderance of power also creates more opportunities for U.S. policy makers to employ the policy. Economic sanctions can serve as an alternative, antecedent, or auxiliary to the use of military force. The high costs associated with using military force abroad can cause sanctions to appear as a low-cost alternative, leading economic sanctions to be used as a frequent substitute for military force when coercive responses are deemed necessary. U.S. policy makers are also thought to rely on economic sanctions for symbolic purposes in response to domestic and international pressure to take action against objectionable behaviors by foreign actors.13 In such cases, policy makers may deem diplomatic approaches as insufficient, incentives-based approaches as inappropriate, and military approaches as too costly—leaving only sanctions on the table. It also helps that both the president and Congress can impose economic sanctions, and they can do so relatively quickly and with few upfront costs. Even with their poor overarching track record of success, U.S. policy makers thus often view economic sanctions as the most expedient, preferable policy option available to them in comparison to the range of alternative options they could employ.14 Yet, much as the vast bulk of an iceberg sits out of sight below the waterline, many of the costs associated with using economic sanctions are not immediately observable to U.S. policy makers when they decide to employ them. The real costs associated with the use of sanctions tend to be overlooked or ignored.15

Not only does the U.S. government frequently employ economic sanctions when they have little chance of succeeding, but U.S. policy makers also remain committed to failed sanctioning efforts for far too long. When the United States has imposed economic sanctions to achieve a political objective, they have failed to achieve their objectives almost 66 percent of the time. On average, failed U.S. sanctioning efforts last almost nine years—with some lingering on for over fifty years.16 In the case of the U.S. sanctions against Cuba, U.S. policy makers have been trying to use sanctions to bring about the collapse of the Castro regime since 1960. Rather than abandoning their obviously failing strategy, U.S. policy makers have repeatedly doubled down on their sanctioning efforts over the years. Yet whereas the advocates of those policies have long since left office, the Castro regime still rules in Cuba. This is despite the claims by the Cuban government that the U.S. sanctions have cost it roughly $975 billion since they were imposed.17 Although experts argue that those estimates are inflated, the cost of the U.S. sanctions to its own economy is likely a nontrivial portion of that figure—and that’s only with respect to one country.

Failed sanctions costs come at a high price for U.S. businesses and U.S. workers. It was estimated that during the 1990s the U.S. government’s sanctions policies cost American businesses approximately $12 to $18 billion a year in lost exports.18 In one of the only studies of its type, Gary Hufbauer and his coauthors estimated that the U.S. government’s sanctions cost the U.S. economy roughly 200,000 jobs in 1995 due to lost export opportunities.19 By denying American companies the ability to compete with foreign competitors in some markets, the U.S. government’s sanctions can hurt their overall competitiveness. Restrictive export control policies on the export of U.S. satellite technology to countries like China, for example, have harmed the U.S. space industry.20 These policies also can encourage U.S. firms to relocate their business operations abroad to countries that impose far fewer sanctions. For example, Halliburton’s decision to move its corporate headquarters to the United Arab Emirates after it endured congressional investigations into its subsidiary’s business dealings with Iran appears consistent with these motives.21 U.S. sanctions can also encourage generally law-abiding companies to engage in smuggling, fraud, and/or money laundering in order to circumvent U.S. sanctions in pursuit of otherwise legitimate, profitable commerce. And whereas a lot of sanctions-busting trade does not technically break any laws, it often requires business enterprises to violate the spirit in which they were imposed. This forces various federal agencies, like the Department of Treasury and the U.S. Bureau of Industry and Security, to engage in costly cat-and-mouse games in enforcing U.S. sanctions policies against the firms whose businesses the sanctions are hurting.22 If the political objectives for which sanctions are imposed are valid and achievable, these costs may be justifiable; however, at least two-thirds of the time these costs are incurred for naught.

The United States does not bear the costs for its failed sanctions policies alone. A rising body of scholarship has detailed the harsh and often unintended consequences of economic sanctions on their targets. In the case of Iraq, it is estimated that the sanctions imposed against the country after the first Gulf War (1991–2003) contributed to the deaths of hundreds of thousands of innocent civilians within the country.23 The civilian costs the sanctions inflicted in this case were extreme but otherwise not anomalous. Leaders of sanctioned states, and especially authoritarian ones, have proven adept at insulating themselves from economic sanctions and passing along their burdens to politically disenfranchised communities within their countries.24 The declines in public health experienced by sanctioned states are a powerful indicator of these effects. Recent studies have also shown that sanctioned governments increase their repressiveness, and their human rights records worsen. These findings suggest that economic sanctions can have devastating impacts on the civilian populations of the countries they target.25 The human costs of sanctioning efforts can still be high even when they fail to achieve their intended goals.

Economic sanctions’ negative effects are not solely limited to their senders and targets but spill over to involve other countries as well. For example, economic sanctions often prove disruptive to their targets’ broader network of trade relationships with third-party states. As an unintended consequence, sanctions can thus do a great deal of harm to their targets’ trading partners.26 By encouraging the development of illicit trade and smuggling networks, sanctions can also empower organized criminal enterprises within sanctioned states and their neighbors.27 These externalities may generate resentment among third-party states that they direct back toward the United States. Yet economic sanctions also create lucrative opportunities for some third-party states to profit from exploiting the sanctions imposed against target states. As such, U.S. sanctions can encourage third-party states to forge closer commercial relationships with its sanctioned adversaries. This can be particularly problematic for the United States when those third-party states are also U.S. allies.28 Because the primary means the U.S. government has to dissuade countries from exploiting its sanctions are coercive in nature,29 attempts to make sanctions against a target state more effective often involve angering or even alienating third-party governments. All these factors add to the costs of imposing economic sanctions.

In sum, economic sanctions should not be viewed as a low-cost substitute for the use of military force. In the United States’ case, its government’s sanctions cost Americans billions of dollars and hundreds of thousands of jobs. Economic sanctions impoverish and often inflict misery on the citizens living in the states against which they are imposed. Sanctioning efforts can also estrange the United States from the countries whose cooperation it needs to make its sanctions successful and drive them to form closer relationships with the state it’s sanctioning. These costs accrue irrespective of whether sanctioning efforts succeed or fail. After being told international sanctioning efforts against Iraq (1990–2003) had been linked to the deaths of hundreds of thousands of Iraqi children, then-U.S. Secretary of State Madeline Albright replied that maintaining the sanctions “is a very hard choice, but we think the price is worth it.”30 Although much of Iraq suffered due to the international sanctions imposed against it, Saddam Hussein remained firmly entrenched in power—supported by an extensive sanctions-busting network that his regime had cultivated.31 Whereas using economic sanctions often involves hard choices, U.S. policy makers have not always made those choices with an accurate understanding of their true costs and the factors that determine their chances of success. Improving U.S. sanctions policies requires not only increasing their success rate but also facilitating better choices concerning when sanctioning efforts are appropriate or should be abandoned.

Explaining the Failure of U.S. Economic Sanctions

Why do economic sanctions fail so frequently? Although a number of different explanations exist for sanctions’ poor success rate, the role played by external spoiler states constitutes a significant and still largely unexplained factor responsible for sanctions’ failure. By engaging in sanctions-busting behaviors, countries that are not primarily responsible for imposing sanctions against a target state (a.k.a. third-party states) can undermine their effectiveness. Sanctions busters tend to come in two varieties. The first type of sanctions buster engages in extensive commerce on behalf of sanctioned states to exploit the profitable opportunities that U.S. sanctions create—namely through trade. Private, profit-seeking businesses and traders are the principle agents that cultivate these trade-based sanctions-busting relationships, though their governments can adopt policies that protect and encourage such trade. The second type of sanctions buster is driven primarily by politics, comprising governments that seek to undermine the sanctions’ effectiveness through providing target states with foreign aid. This type of sanctions busting differs from the trade-based variety in that supporting sanctioned states via foreign aid can be quite costly. As such, aid-based sanctions busters tend to be much rarer. Both types of sanctions busting are driven by different motivations, occur under differing circumstances, and undermine the effectiveness of sanctions in different ways. States targeted with U.S. sanctions can leverage both types of sanctions-busting assistance to hold out against and, ultimately, defeat the U.S. sanctioning efforts imposed against them.

This book offers the first comprehensive explanation of how both aid-based and trade-based sanctions busting influence the effectiveness of sanctioning efforts and why third-party states engage in such behaviors. The sanctions-busting theory developed in the book combines the liberal paradigm’s approach toward understanding the role nonstate actors play in shaping their states’ foreign policy and international trade behaviors with the more nuanced insights on leader behavior advanced by the literature on political survival.32 It emphasizes that economic sanctions differently affect and, in turn, can be differently affected by governments’ leaders and their constituents. In some cases, the interests of leaders and their constituents may align in favor of supporting sanctions-busting efforts on behalf of a target state, but in other cases they may diverge. These interactions can have surprising results. For example, the sanctions-busting theory developed in this book counterintuitively predicts that the United States’ closest military allies will be in one of the best positions to exploit its sanctions for commercial profits. By offering a joint account of why states engage in extensive sanctions busting and how it affects the success of sanctioning efforts, sanctions-busting theory can explain one of the root causes of why U.S. sanctioning efforts so often fail.

Countries sanctioned by the United States can leverage trade-based and aid-based sanctions busting in different ways to defeat sanctioning efforts. Extensive trade-based sanctions busting can help mitigate the adverse economic impact that sanctions have on their targets’ economies and constituents. Although trade-based sanctions busters will seek to profitably exploit the commercial opportunities created by U.S. sanctions, they can make adjusting to the sanctions much more affordable for target states than it would otherwise be. Sanctioned states that have extensive trade-based sanctions-busting relationships with third-party states are thus under far less pressure to capitulate to U.S. sanctioning efforts than those without them. The amount of foreign aid made available to the governments of sanctioned states can also influence their ability to resist U.S. sanctioning efforts. Foreign aid surpluses can help target leaders mitigate the economic hardships caused by sanctions and preserve the loyalty of their politically important constituents. Conversely, reductions in the amount of foreign aid provided to sanctioned states can exacerbate the political and economic damages the sanctions inflict and diminish the ability of governments to respond to those grievances. Third-party governments that provide sanctioned states with extensive amounts of foreign assistance can thus undermine the effectiveness of U.S. sanctioning efforts, but states sanctioned by the United States may also be vulnerable to sudden withdrawals of external aid.

For third-party states, the key difference between trade-based and aid-based sanctions busting is that the former can be profitable whereas the latter is necessarily costly. This distinction shapes the factors affecting third-party states’ willingness to engage in either type of sanctions busting. Trade-based sanctions busting can benefit a third-party country’s commercial constituents and, in some cases, advance its political interests as well. For the most part, though, commercial motivations explain the lion’s share of the trade-based sanctions busting that takes place on behalf of target states. By virtue of their preexisting political, commercial, and geographic relationships with target and sender states, engaging in sanctions-busting trade on behalf of target states may be especially lucrative for firms in particular third-party states. In those instances, third-party governments have strong incentives to protect and foster their constituents’ trade with targets states even in the absence of foreign policy reasons to do so. Especially when the potential profits from sanctions busting are significant, the commercial interests of third-party states’ constituents can readily overwhelm their leaders’ foreign policy interests in supporting U.S. sanctioning efforts. The lucrative profits provided by sanctions busting, for example, explain why the governments of some U.S. allies exploit the political cover provided by their alliances to protect their constituents’ sanctions-busting activities instead of supporting their ally’s sanctioning efforts. Target states, in turn, have significant incentives to focus their sanctions adjustment strategies on forging extensive sanctions-busting relationships with the handful of countries that they can trade with the most profitably. Only the countries that can provide target states with the most cost-effective means of adjusting to the sanctions are thus likely to emerge as extensive trade-based sanctions busters in a given sanctions episode.

Alternatively, third-party states should engage in extensive aid-based sanctions busting in only a relatively narrow set of circumstances. For third-party governments to take on the expense of extensively aiding sanctioned states, they need to have both the resources and the salient political interests, such as an ideological stake in the sanctions dispute’s outcome, to make such significant investments in defeating U.S. sanctioning efforts. Due to the costs associated with aid-based sanctions busting, even third-party governments that meet these qualifications should prefer to use a trade-based sanctions-busting approach if that approach is feasible. The presence of a salient political motive, the availability of disposable resources, and the infeasibility of a market-driven, trade-based option should all be jointly necessary for third-party states to engage in extensive aid-based sanctions busting. Even when all three factors are present, though, that may not be enough to cause a third-party government to offer its patronage to a target state. As such, forging aid-based sanctions-busting relationships often require the leaders of target states to actively court the support of potential benefactors. All this suggests that extensive aid-based sanctions busters should be much rarer than trade-based sanctions busters.

My dual accounts of both the causes and consequences of sanctions busting offer new insights into how third-party states influence the success of U.S. economic sanctions. Because the success or failure of the U.S. sanctioning efforts often depends on whether the target can obtain sufficient support from third-party sanctions busters, this extends the breadth of sanctions conflicts far beyond the United States and the immediate target of its sanctions. Third-party states serve as one of the primary battlegrounds on which sanctioning efforts are won or lost, with target leaders actively seeking to form strong sanctions-busting relationships with third-party states and U.S. policy makers seeking to prevent or disrupt such relationships if they can. Despite the United States’ preponderance of power, competition for third-party support often tips heavily in favor of target states—as only a handful of sanctions busters can completely undermine a sanctioning effort, and the costs associated with disrupting third-party sanctions busting tend to be disproportionate to the benefits it yields. For even if the United States can sever one third-party state’s sanctions-busting support for a target, the target may have many other alternative third parties in line to take that state’s place. These insights suggest that it is imperative for U.S. policy makers to understand which third parties are most likely to sanctions-bust, which approach they are likely to use, and what impact their efforts will have on the sanctions’ likelihoods of success. Even if U.S. policy makers cannot always stop sanctions busting from taking place, they can better account for its corrosive effects in their decisions to impose and maintain sanctions.

Analyzing Sanctions Busting’s Causes and Consequences

To evaluate the sanctions-busting theory’s ability to explain the role sanctions busting has played in undercutting U.S. sanctions efforts, the book examines U.S. sanctions policies from 1950 to present times.33 The book employs a balanced mixture of quantitative and qualitative analyses. This approach offers insights at both the micro- and macrolevels as to the causes of sanctions busting and the consequences it has on the success of sanctioning efforts.34 The empirical portions of the book are divided into two sections. The first section seeks to ascertain the impact that aid-based and trade-based sanctions busting have on the efficacy of U.S. sanctioning efforts via a statistical analysis of ninety-six historical cases of U.S. sanctions from 1950 through 2002. The analysis introduces several novel operational measures capable of capturing how much aid-based and trade-based sanctions-busting support a target receives over the course of sanctions episodes. Whereas previous work has relied on a static, dichotomous measure of whether sanctioned states received any external support over the course of a sanctions episode,35 these new measures are capable of evaluating the distinct and dynamic impacts that trade-based sanctions busting and foreign aid flows have on the success of U.S. sanctioning efforts. This analysis reveals the extent to which sanctions busting actually undercuts U.S. sanctions.

The second, more expansive empirical portion of the book examines why third-party states engage in extensive trade-based and aid-based sanctions busting. The first empirical chapter in this section explores why and how the UAE grew to become Iran’s most important trade-based sanctions buster. As the UAE and United States formed a defensive alliance in 1994, this case is particularly useful in exploring why U.S. allies are more likely to become extensive trade-based sanctions busters. The next chapter conducts a statistical analysis of which countries became extensive trade-based sanctions busters in the same ninety-six cases of U.S.-imposed sanctions from the previous paragraph. This analysis broadly tests a number of hypotheses regarding the economic, political, and geographic factors that make third-party states more likely to engage in trade-based sanctions-busting. The last empirical chapter conducts a comparative analysis of the cases in which third-party governments provided extensive sanctions-busting aid to Cuba. Specifically, it examines the patronage that the Soviet Union and China offered to Cuba during the Cold War and the assistance that Venezuela under Hugo Chávez and China have provided it in the post–Cold War era. This chapter also explores the Castro regime’s strategies for obtaining sanctions-busting support and why the U.S. government’s efforts to prevent third-party sanctions busting were largely ineffective. These chapters draw on the combined strengths of three different methods of analysis to comprehensively analyze why sanctions busting occurs and what form it takes. They also offer policy-relevant insights at multiple levels of analysis.

The Findings in Brief and Their Implications

The findings from the empirical analyses provide strong support for the theory of sanctions busting developed in the book and offer a number of important insights relevant to U.S. sanctions policies. The results from the first statistical analysis demonstrate that sanctions busting has a major detrimental impact on the effectiveness of U.S. sanctions. When target states have the support of trade-based sanctions busters and/or experience surpluses in their foreign aid flows, U.S. sanctioning efforts are far less likely to succeed in their objectives. Even the emergence of a single trade-based sanctions buster can dramatically reduce the likelihood of sanctions being successful. It is important to note that the analysis demonstrates that both aid-based and trade-based sanctions busting exercise strong, independent effects on sanctions outcomes. It also reveals that sanctioning efforts are more likely to succeed when target states experience sharp, sudden reductions in their foreign aid flows. This indicates that the overarching foreign aid flows target states receive can both positively and negatively affect economic sanctions’ likelihood of success. Both U.S. and target policy makers can thus manipulate the effectiveness of the U.S. sanctioning efforts by influencing the trade and aid flows that third-party states provide to target states.

Evidence from the UAE–Iran case study and second statistical analysis offer strong support for the sanctions-busting theory’s account of why third-party states engage in extensive trade-based sanctions busting. There is overwhelming evidence that the trade-based sanctions-busting relationship that the UAE developed with Iran was driven by commercially motivated actors seeking to profit from the U.S. sanctions against Iran. Sanctions-busting firms and traders took advantage of the UAE’s close geographic relationship to Iran, the historically strong commercial ties between Dubai and Iran, and the commercially open, laissez-faire business environment fostered by Dubai. They also exploited the political cover offered by the alliance the UAE government formed with the U.S. government in 1994. These findings illustrate the theory’s descriptive account of how and why trade-based sanctions busting takes place. The subsequent statistical chapter further demonstrates that the sanctions-busting theory’s predictions about the types of states most likely to become trade-based sanctions busters proved to be remarkably accurate. The analysis indicates that the factors that affect the profitability of sanctions busting are the leading determinants of which third-party states become extensive trade-based sanctions busters. It also provides compelling evidence that U.S. allies are far more likely to become trade-based sanctions busters than are other countries.

The comparative analysis of the Cuban sanctions-busting cases is generally supportive of the sanctions-busting theory’s predictions regarding the emergence of aid-based sanctions busters but suggest that a minor revision to the theory is in order. In the cases of the aid-based sanctions busting provided by Cold War China, the Soviet Union, and Venezuela, all three of the necessary conditions identified by the sanctions-busting theory are present. Each country had a salient political motive to defeat the U.S. sanctions and the discretionary resources to invest in the effort, and each lacked a viable trade-based sanctions-busting alternative. The case of post–Cold War China met those first two conditions but deviated in the latter. Instead, it adopted a hybrid strategy of using extensive foreign aid as an augment to its sanctions-busting trade with the country. This suggests that sometimes third-party states may employ sanctions-busting aid in addition to sanctions-busting trade to accomplish their goal of undercutting U.S. sanctioning efforts. The narratives of all four cases also illustrate the active political role Fidel Castro played in recruiting the patronage of the states that aided his country and how he balanced the assistance offered by these states with the use of trade-based sanctions busting as well. Many more states were willing to engage in trade-based sanctions busting on Cuba’s behalf than were willing to aid it, but the latter states’ support proved essential to Cuba’s long-term resistance of the U.S. sanctions.

Together, these findings reveal distinctive profiles for the types of states likely to bust U.S. sanctions using either approach. The United States’ democratic, commercially competitive allies with large economies (for example, Great Britain, Canada, and Japan) appear most likely to engage in trade-based sanctions busting, while its wealthy, ideologically motivated adversaries (such as the Soviet Union, China, and Venezuela) appear most likely to become aid-based sanctions busters. U.S. sanctioning efforts are thus commonly besieged on all sides, undercut by friends and foes alike. Yet although the adverse effects of aid-based sanctions busters can be mitigated, the deleterious impact of trade-based sanctions busters rarely can be. As such, it is unfortunate in this regard that the United States has so many more friends in the world than adversaries because its closest allies appear to be its sanctions’ worst enemies. Overall, the findings indicate that sanctions busting is an endemic and often intractable problem associated with the use of sanctions.

The findings from the analysis offer an array of important insights for policy makers concerning how to better use economic sanctions as an effective tool of economic statecraft. Diagnostically, policy makers can use the empirical models in this book to understand the effects of sanctions-busting trade and foreign aid on their sanctions’ likelihood of success. Equipped with this knowledge, policy makers can make more informed decisions about when sanctions can be used most effectively and when it may be best to give up on heavily busted sanctioning efforts. The book’s findings can also be used to develop profiles of the types of states that are likely to become extensive sanctions busters. Policy makers can use this knowledge to identify the greatest sanctions-busting threats and focus their efforts at dissuasion accordingly. Lastly, the findings on how the foreign aid flows received by targets affect their ability to resist sanctions provide policy makers with new knowledge on an additional tool they can leverage to improve their sanctions’ chances of success. Although many of the challenges posed by sanctions busting may be intractable, policy makers armed with better knowledge about how sanctions busting works and the effects it has should be able to wield economic sanctions far more effectively than those lacking it.

Plan of the Book

The rest of the book proceeds as follows. Chapter 2 provides more in-depth descriptions of sanctions-busting behavior and the profiles of aid-based and trade-based sanctions busters. Chapter 3 presents the sanctions-busting theory’s account of how trade-based sanctions busters and foreign aid affect the success of sanctioning efforts and tests it via a statistical analysis. Chapter 4 presents the sanctions-busting theory’s explanation of why third-party states choose to engage in trade-based and aid-based sanctions busting. Chapter 5 tests the descriptive accuracy of the theory’s explanation of trade-based sanction busting via a process-tracing analysis of how the UAE became Iran’s leading trade-based sanctions buster. Employing another statistical analysis, Chapter 6 evaluates the sanctions-busting theory’s general ability to explain which states are most likely to become trade-based sanctions busters. Chapter 7 conducts the comparative analysis of the third-party states that became aid-based sanctions busters on Cuba’s behalf both during and after the Cold War. The concluding chapter summarizes the combined findings from the analyses and explores their broader theoretical and policy implications.

Notes

1. Lister 2012.

2. These gold export statistics and those above were obtained from Pamuk 2012.

3. Pamuk 2012.

4. Kandemir 2013.

5. For example, see Dubowitz and Ottolenghi 2013.

6. For more on the A. Q. Khan proliferation network and the role Dubai played, see Albright and Hinderstein 2005, 120 and Corera 2006.

7. Stolberg 2010.

8. Baldwin 2002.

9. Baldwin 1985.

10. See Baldwin (1985, 1999/2000) and also Most and Starr (1989) for more on the substitutability of these foreign policies.

11. Hufbauer et al. 2007 and Morgan et al. 2009.

12. See the sanctions data sets created by Hufbauer et al. (2007) and Bapat and Morgan 2009, 1082. Pape (1997) argues that the success rate of economic sanctions is more likely in the single digits. Nincic (2005) further argues that economic sanctions are poor policy instruments for compelling rogues states into reforming.

13. For example, see Whang 2011.

14. For an excellent discussion of why policy makers employ sanctions, even knowing their poor track record of success, see Baldwin 1999/2000.

15. Richard Haas (1997), for example, has been especially critical of the U.S. over-reliance on economic sanctions.

16. These figures are calculated via the ninety-six episodes of U.S.-imposed sanctions from 1950 through 2002 using Hufbauer et al.’s (2007) data set.

17. Galeano 2012.

18. Askari et al. 2003b, 167–169.

19. Hufbauer et al. 1997.

20. Johnson-Freese 2007.

21. Krauss 2007.

22. For example, see U.S. Department of Commerce, Bureau of Industry and Security Export Enforcement 2010.

23. Mueller and Mueller 1999.

24. Kaempfer et al. 2004.

25. For more on the various negative effects that sanctions have on their targets, see Wood 2008; Peksen 2009, 2011; Peksen and Drury 2010; Peterson and Drury 2011; and Allen and Lektzian 2013.

26. Van Bergeijk 1994, Caruso 2003, and Slovov 2007.

27. Andreas 2005.

28. Early 2012.

29. In her seminal book, Lisa Martin (1992) argues that powerful states must coerce much of the cooperation they seek in imposing multilateral economic sanctions against a target country.

30. Pilger 2000.

31. For more on the impact of the sanctions against Iraq, see Alnasrawi 2001, Katzman 2003, and Iraq Survey Group 2005.

32. See Bueno de Mesquita et al. (2004) for the former and Moravcsik (1997) for the latter.

33. As such, the analysis does not include the use of sanctions imposed for purely commercial purposes, such as trade sanctions imposed by the U.S. Trade Representative under Section 301 of the Trade Act of 1974.

34. This approach mirrors the one taken by Lisa Martin in Coercive Cooperation (1992).

35. See Hufbauer et al. 1990, Drury 1998, Drezner 2000, Nooruddin 2002, and Lektzian and Souva 2007.