Degrade and Deny: Economic Sanctions 2.0
Earlier this year, the UK Government published its sanctions strategy: Deter, Disrupt and Demonstrate. This stated that the purpose of sanctions is to “DETER future or continued malign activity; to DISRUPT current malign activity; and to DEMONSTRATE our readiness to defend international norms”;
This paper builds on this strategy and outlines what an ‘Economics Strategy 2.0’ might look like. It synthesises the academic literature on the effectiveness of sanctions and observations from microeconomic theory, finding that whilst there is evidence to support the use of sanctions to degrade the ability of the target to pursue its desired policies, the evidence on the deterrent and signalling effects of sanctions are likely dependent on this degradation effect;
Applying this analysis, we propose a model sanctions strategy that is focused on degrading the target’s ability to pursue its objectionable policy and denying it the ability to circumvent any sanctions;
We note that, in order to increase the effectiveness of any sanctions, they need to be imposed by a large enough coalition to meaningfully affect the target’s economy, and methods of sanctions circumvention – including through countries outside of the sanctions coalition – must be tackled;
We use Russia as a case study and, applying the model, suggest the following five steps to reduce its ability to wage war on Ukraine:
Re-establishing CoCom, the multilateral body that coordinated restrictions on exports to members of COMECON during the Cold War;
Requiring all Western businesses, including financial institutions, to cease operating in Russia unless granted a licence, and making sanctioned Russian state assets available to compensate businesses if Russia expropriates or prevents them from repatriating their assets;
Encouraging hard currency outflows from Russia;
Offering sanctions delisting in return for condemning Putin and contributing to a fund for the reconstruction of Ukraine;
Expanding the use of secondary sanctions to deter enablers of sanctions circumvention.