Is The Sanctions Era Finished? – OpEd


The United States has always embraced sanctions as a diplomatic tool. A prime example is how the Biden administration responded to Russia’s invasion of Ukraine: it hit Moscow with a slew of punishing economic measures right once and persuaded other governments to follow suit. It makes sense that U.S. policymakers choose sanctions as a tool. Between pointless diplomatic pronouncements and lethal military interventions, they fill the space. However, the heyday of US sanctions might soon come to an end.

As Washington’s reliance on sanctions has grown, many rogue governments have started to fortify their economies against them. Particularly three incidents from the past ten years have persuaded them to do so. In an effort to financially isolate Iran, the United States cut off access to SWIFT in 2012. SWIFT is a global messaging system that facilitates almost all international payments. Other American adversaries noticed and wondered if they might be next. Then, in 2014, after Russia annexed Crimea, Western nations imposed sanctions on it, which compelled Moscow to priorities economic independence. Finally, a trade war between Washington and Beijing broke out in 2017 and quickly spread to the tech industry. By limiting the transfer of American semiconductor know-how to China, the US warned its foes that their access to vital technology would be cut off.

Sanctions resistance has emerged as a new phenomenon as a result of these three incidents. The dominance of the American currency and the scope of American control over international financial systems provide the United States the authority to impose sanctions on other nations. Therefore, it makes sense that the US’s adversaries would look for financial advances to counteract these US advantages. Such nations are increasingly finding them through currency swap agreements, SWIFT substitutes, and digital currencies.

There has always been a warning about using punishments excessively. Bill Clinton, the president of the United States, bemoaned the fact that his country had become “sanctions happy” in 1998. He was concerned that it may appear as though the nation wanted to punish everyone who disagreed with it. These worries were exaggerated at the time since sanctions were still occasionally a useful instrument and because the United States remained an unbeatable economic superpower. For instance, they forced Muammar al-Qaddafi, the leader of Libya, to hand over the suspects in two flight bombings and to consent to the destruction of his arsenal of nuclear and chemical weapons in the late 1990s. But since then, the use of sanctions has accelerated significantly, and the United States’ adversaries have responded by taking preventative action In response, opponents have taken proactive steps to avoid such consequences.

Bilateral currency swaps, which give nations a means to avoid using the dollar, are one method that nations have strengthened their ability to withstand sanctions. Direct connections between central banks through currency swap agreements eliminate the need for a middle currency in trade. China has enthusiastically embraced this strategy, establishing currency-swap deals worth a combined total of almost $500 billion with more than 60 nations, including Argentina, Pakistan, Russia, South Africa, South Korea, Turkey, and the United Arab Emirates. Beijing wants to make it possible for Chinese businesses to avoid American financial channels when they want to.

For the first time in 2020, China settled more than half of its commerce with Russia in a currency other than the U.S. dollar, rendering most of these business transactions exempt from American sanctions. It shouldn’t have been a surprise that China and Russia would create payment systems using the renminbi and the ruble. In an effort to avoid the US dollar and US sanctions, the Shanghai Cooperation Organization, a political group that includes China, India, and Russia, gave priority to the development of local currency payments in March 2020.

Given the appalling condition of relations between Washington and Beijing, China’s rising desire to dump the U.S. currency is reasonable. But currency exchange agreements are also being reached by US allies. India purchased S-400 air defence weapons from Russia in 2019. U.S. sanctions ought to have been triggered by the $5 billion deal. However, a former Soviet-era currency exchange deal has been revived by India and Russia. India purchased the Russian missiles using a combination of Indian rupees and rubles, evading potential U.S. sanctions that would have prevented the deal.

All of this suggests that within a decade, the impact of American unilateral sanctions may be minimal. The best option will likely be multilateral actions supported by Japan, the United States, the European Union, and other like-minded nations. While these sanctions are more challenging to construct, it is much more difficult for the targeted countries to get around them. Even China would not be able to afford to simultaneously lose access to the European, American, and Japanese markets. The creation of multilateral sanctions will, in the best case scenario, encourage the creation of a worldwide framework to increase the efficacy of sanctions. Similar organizations already handle topics like maritime law, the war on drugs, and refugee resettlement that need for international cooperation. Why not create one for sanctions? 

Such an entity would examine the effectiveness of sanctions with the goal of modifying Western financial routes to handle upcoming crises. Additionally, it would research the consequences of sanctions, paying particular attention to rising nations. China is aware that its efforts to challenge American financial hegemony will either succeed or fail depending on whether developing nations choose to continue using or reject Western financial channels. Sanctions resistance might only be cured by a group devoted to these issues.

Aqleema Jabbar, holds a Masters in IR, University of Balochistan

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