The video recording of the interview is available here.
In the last few decades, economic sanctions have come to affect up to a third of the world’s economy. The percentage of countries targeted by these coercive measures has gone up by 17% since the 1990s and continues to grow despite their severe humanitarian consequences, which are often compared to those of armed conflict.
Anita Fuentes, Security in Context’s Media and Knowledge Production Manager, had the chance to speak to Francisco Rodríguez, author of the CEPR report “The human Consequences of Economic Sanctions.” In this report, Rodríguez provides a comprehensive assessment of the existing literature surrounding the effects of economic sanctions on living standards in targeted countries.
Francisco Rodríguez is a Rice Family Professor at the University of Denver's Josef Korbel School of International Studies as well as the director and founder of Oil for Venezuela, an NGO focused on finding solutions to Venezuela's humanitarian crisis.
Anita Fuentes
As an economist, you are well known for your work on economic growth, trade policies and economic development. Could you tell us how you came to work on the topic of sanctions?
Francisco Rodríguez
It started with my interest in the Venezuelan economy. I am a Venezuelan and I have also written several papers and a book on Venezuela’s economic growth. And when I started looking at the period of the past decade we saw an economic implosion in Venezuela, with a huge decline of 72% in per capita income, which is the largest decline ever observed in Latin America, and also the largest observed in the world outside of a wartime context. When I view this as an academic and looking at it from the standpoint of economic growth, it poses a puzzle, in the same way in which some scholars study growth miracles, I also think it makes a lot of sense to study growth disasters. When we see these economies completely implode we want to understand what is going on there. So I started researching the costs for the country's decline. And immediately, the big role of the oil sector decline appeared and when we started looking at what had happened in the oil sector and how this country lost 93% of its oil export revenue over the course of eight years, the impact of sanctions became very clear. So that is one of the reasons that got me involved.
But more broadly, as you pointed out, my research has been on growth and international trade, and one of the things that struck me the most that I learned about sanctions is how absent they are from the traditional discussion of international trade and growth among economists. In fact, if you look at international trade textbooks, in many cases some of the standard textbooks used to teach make no mention of sanctions. Despite that, we know and we have corroborated — and I have corroborated it in my recent work — that sanctions affect up to a third of the world economy. There is this big missing factor which has to do with the mixture of politics, international politics, trade, and economic policy, which I think is really important to understand the world.
Anita Fuentes
Could you elaborate on one of the cases covered in the report so that our audience can understand the kind of evidence presented and the arguments that are being made? For example, there is a debate about the extent to which the US-led sanctions against Venezuela are the prime cause of the country's economic crisis. Is it possible to disentangle the economic consequences of sanctions from the economic mismanagement of the targeted governments?
Francisco Rodríguez
It is possible at times, but it is very difficult particularly at the level of specific case studies. Let me play a bit with an analogy: if you ask climate scientists “does humanly-induced climate change lead to an increase in the prevalence of natural disasters?” The overwhelming majority of climate scientists will tell you “yes, it is decisively proven.” But if you ask them “can you establish that this hurricane that hit the Caribbean last month was caused by climate change?” Many of them will tell you “well no, we know that climate change leads to an increased prevalence but we cannot always point out that specific events are associated with climate change.” So the same thing happens at cross-national research level on the impact of sanctions. We are much better at using statistical patterns with the cross-country data to establish that sanctions are associated with declines in per capita income and with deteriorations in living and health conditions than we are at proving that these data are the driving factor for decline in any particular case.
Nevertheless, this connection is extremely important to the debate in those cases, because almost everybody who is interested in Venezuela, including many political actors from many sides of the spectrum, really want to understand to what extent sanctions are an important driving factor or the driving factor. I will tell you what I think we have been able to answer about this. First of all, sanctions are not the only driving factor, that is clear. There are other economic policy decisions as well as mismanagement and corruption which severely affected Venezuelan economic performance. During the period between 2000 and 2012, Venezuela enjoyed one of the largest oil booms ever experienced by any Latin American country. In fact, by far the largest experience in that period in Latin America, Venezuela had an 80% increase in trade, and that resulted in purchasing power that the country derived from its exports. Nevertheless, the Chávez administration essentially squandered that oil boom and therefore the country was left not only with very little savings but also with very high levels of external debt, so when all prices started declining in 2014, it was unable to adjust to that shock. So there is definitely a very important component here of poor economic policies.
Nevertheless, when we look at the data, we also see that there is a very strong contribution of sanctions to the country's economic decline. Because oil prices declined between 2014 and 2016, they fell from $100 a barrel to less than $30 a barrel, but then they recovered and increased by 80% over the course of the next two years, but Venezuela's economy continued declining, which is very atypical. In fact, in past periods of crisis whenever a crisis recovered, Venezuela's economy started to recover. So what happened? What happened was that oil production started declining and when we look at this time series on oil production, we find that the declines in production, and particularly the changes in production trend, are closely associated with the timing of sanctions; so you see in the series an acceleration of the rate of decline. In August 2017 with the first financial sanctions, you see another acceleration in January of 2019 with the first oil sanctions, and another one in February of 2020 when sanctions were imposed for the first time on the country's foreign oil partners. So all of this configures in itself pretty strong evidence.
I have also looked at firm-level data and investigated the firms that were most affected by sanctions, particularly in the oil sector. Firms that accessed finance before the 2017 financial sanctions closed off that access saw much faster drops in the level of their oil output than those firms that had never had access to finance.
All of this configures very strong evidence that sanctions have been an important contributing factor to the Venezuelan decline. How much of the decline do they explain? Well, there is always a confidence interval depending on the different estimation methods, but I would say in order to take a conservative figure about at least half of the decline in oil production is attributable to sanctions, possibly more. And that really is a major effect, because if Venezuela was producing the same amount of oil that it was producing back in 2015 at current oil prices then this would be a country with a massively higher level of export revenues and therefore with much better living conditions. In that sense I think that we can safely say that sanctions have been a major contributor to the decline. If you want to get precise about a number, we can conservatively say that they explain about at least half of the decline in oil production, which is the main driving factor of Venezuela's economic decline. But there are certainly other factors that are also very relevant.
Anita Fuentes
There is a range of views about economic sanctions. Those who defend their use argue that they are a necessary tool to induce behavioral change in the targeted entities or countries. Others see them as a form of economic warfare exercised mainly by the West and particularly by the United States against non-Western countries. In the report you allude to the question of intentionality. For instance, you discuss US officials talking about Russia and Iran, I am referring specifically to the following excerpt:
It appears clear that some of the economic and humanitarian impact of sanctions on targeted populations is intended. For example, a statement issued by the UK government after freezing Russian central bank assets in February 2022 stated unambiguously that sanctions will devastate Russia's economy; in February 2019 Secretary of State Mike Pompeo stated in response to a question about the effects of sanctions on Iran ‘things are much worse for the Iranian people and we are convinced that that will lead the Iranian people to rise up and change the behavior of the regime.’ Pompeo made similar statements about US sanctions in Venezuela the following month.
Would you say economic sanctions are used as an alternative to war or as a mechanism to incite homegrown revolts aimed at overthrowing certain regimes without boots on the ground? What would be your assessment on the question of intentionality?
Francisco Rodríguez
That is definitely how they are used in some cases. I think it is very important to start off from a distinction between personal targeted sanctions and broad economic ones, which are also known as sectoral sanctions. There are a number of cases in which the US government has put sanctions on individuals in particular countries. For example, for particular politicians in Paraguay or Panama, the sanctions have only been leveled at those individuals, and have not been leveled at the economy. I think that those sanctions are first of all necessary tools of foreign policy and I do think that they play an important role. The evidence on the effect of those sanctions is that they do not really have a major effect on the economy of these countries, as long as they are targeted and reasonably limited to some actors who are involved in wrongdoing.
Then, at the other extreme you have economic sanctions. The sanctions imposed on Venezuela and Iran are on their oil sectors. In both countries you have a central bank that is sanctioned, which plays an extremely important role in keeping any economy afloat. A central bank’s inability to carry out international transactions is by itself going to provoke a currency crisis in that country. In those cases it is very clear that sanctions have an effect on the economy, which is very much documented in the report that I authored, where we surveyed 32 quantitative studies and found that of these 30 found unambiguously negative effects of sanctions on living conditions in target countries, sometimes with very large and significant effects. So for example, sanctions are associated with a decline of 26% in GDP per capita of targeted countries. That is the equivalent of the decline in US GDP during the Great Depression. Sanctions are associated with a decline of 1.4 years in female life expectancy; that is equivalent to the effect on life expectancy of the global COVID pandemic. These are very large effects and it is clear that policymakers are aware of those effects. The quotes that you just read clearly indicate that in these cases they know what they are doing; they know that these sanctions are going to very strongly hurt the economy.
Do Western governments enact sanctions because they want to incite a homegrown revolt? What is the theory of change that is behind these sanctions? I think sometimes revolt is the motivation, other times sanctions are a way to try to break the governing coalition. So in the Venezuelan case it was very clear that overtures that the US tried to make to the Venezuelan military so that the military would overthrow Maduro, ended up being ineffective, which leads us to another big problem with sanctions: if they fail, as the empirical evidence tells you that most of the time they do, they do not reach their intended ends. Then, what do you do? Because Venezuela ended up trapped in the worst of both worlds, ruled by an authoritarian leader and with sanctions imposed on its economy. That, to a certain extent, is one big problem, which is that even though they are a tool which makes sense from a theoretical standpoint to induce behavioral change in the targeted entity, at the same time they have these massive collateral effects on the population. And this really requires us to ask the question: given that these sanctions can be as deadly as a war, is it legitimate to continue using them for the purposes of inducing regime change? And when you add to that the fact that a lot of times they are ineffective because they do not reach their intended aims, then the argument for continuing to use them is highly questionable.
Anita Fuentes
Some critics of sanctions distinguish between Western and US-led sanctions, often referred to as unilateral coercive measures, and those imposed by the UN Security Council. Others discuss the differences between blanket sanctions and so-called smart sanctions, which target the leadership of regimes. What is your opinion about these distinctions? Not only in terms of impact and effectiveness but also in terms of legitimacy.
Francisco Rodríguez
I will start with Western and US-led sanctions vis à vis the UN Security Council. I am not a lawyer and that is really a discussion among legal scholars. Some legal scholars claim that because the UN charter empowers the UN Security Council to impose sanctions, it also precludes countries from imposing individual sanctions on their own. There are others who argue on the contrary that any country has the right to restrict its trade with the rest of the world; countries do it all the time when they impose trade restrictions. So there is no restriction in using that to pursue foreign policy ends. That is a debate on which I do not necessarily weigh in because it is really a legal debate.
However, I would say that there is a reason why the UN Security Council restrictions were imposed initially. It comes from the fact that there had been a previous attempt to create a sanctions regime with the League of Nations after the First World War. The League of Nations did not have a veto mechanism like what we have today, which allows a permanent member of the Security Council to veto sanctions, and therefore, the League of Nations actually imposed sanctions on Italy after its invasion of Ethiopia. Those sanctions were not only remarkably ineffective, and failed to deter Italy from occupying Ethiopia up until the end of the war, but also those sanctions pushed the Italian government headed by Benito Mussolini at the time into becoming a very staunch German ally. So sanctions are part of the roots — I wouldn't say of World War II itself — but at least of the Germans being able to have both Italy and Japan’s support, following a similar incident with Japan's allies.
That is why when this regime started being rebuilt with the UN and the creation of the UN Security Council, there was a restriction that was put in there. This restriction is intended to assure that there is a broad overarching consensus through a UN Security Council resolution approved by its majority and not vetoed by any permanent member, that sanctions need to be imposed. And we have seen that consensus and we continue to see it for example today in the case of North Korea.
UN Security Council sanctions on North Korea are in place and they are supported by both Russia and China despite their conflict with the United States, so when you stray into the ground of saying “let's not accept these restrictions and have the US or the EU just go its own way and impose actions,” you can end up having this overuse of sanctions that we are seeing right now where you have 27% of countries and 29% of the world economy affected by sanctions — most of them unilateral sanctions from the US. Such efforts not only can break down the world trading system, they are also remarkably ineffective, because these numbers have increased significantly in the past few decades. If you look back at the 1990s, around 10% of countries were sanctioned; if you look back at the 1960s this number was about 5% of countries. Sanctions have a logic of trying to isolate the targeted countries; it is one thing to try to isolate five or ten percent of the world, but it is another thing to try to isolate one third of the world economy. That is not going to work.
On the question of blanket sanctions and so-called smart sanctions, I think the distinction is useful and I wish that that distinction was obeyed more. But what we have seen with US sanction policy over the past decade is the use of targeted sanctions, of these so-called smart sanctions, which are supposed to target particular entities. However, then the US says “we are going to designate for sanction the state-owned oil company, the central bank, the finance minister, the vice president or all of the cabinet;” very interestingly, when the US enforces these policies it also precludes any type of interaction with these actors as government officials, which does not really make much logical sense. If you decide that the vice president of Venezuela is corrupt and you want to sanction him for his corruption, then a US bank should not be able to open up a bank account for that person, but that does not mean that they should block any transactions that he is carrying out on behalf of the Venezuelan state because the Venezuelan state needs to function.
Now, OFAC, the US Treasury Department office in charge of enforcing these sections, has been very clear at prohibiting any US persons without an explicit authorization from OFAC into entering into any type of negotiations with government officials, just because they have been personally targeted, so the distinction between blanket and smart sanctions is blurry. I think that the concept of “smart” sanctions has really just become a mechanism through which the US and other actors can pretend that their sanctions are targeted while using them to replicate the effect of wholesale trade and financial embargoes on countries which can be and are very damaging to the economies of the target countries.
Anita Fuentes
Before we end the interview, is there anything you would like to add that we have not covered yet?
Francisco Rodríguez
I think that it is necessary that we as a society, particularly in the United States but also in other countries that are imposing sanctions, have an open public debate about these instruments. As I said I understand that some sanctions have a role and I think it is important, for example, if you identify terrorist groups to be able to block their access to the global financial system. But clear evidence has laid out that sanctions, in the way in which they are being used today, are having severe effects on humanitarian conditions and are aggravating and in some cases creating some of the world's worst humanitarian crises. This is something that needs to be discussed more.
There needs to be more control by legislators, by Congress, as to how and when the US government is using actions. To give an example of a concrete idea, the US government does not produce any type of impact assessment of its sanctions. That is the first thing that it should do; if it is going to impose sanctions on a particular country on particular actors, it should first of all clearly research what the possible effects of those sanctions are before they are implemented. And then once they are implemented, collect data on their effects so that we can identify if those sanctions are worsening the humanitarian situation, what is the way to mitigate those effects, what is the way to correct them, and what is the way to amend sanctions.
But we are not taking these steps. Congress could mandate the executive branch to carry out impact assessments of the effects of their sanctions on humanitarian conditions in target countries. But in order to get Congress to do this, first we have to have much broader public debate and awareness about the effect of these instruments on some of the world's most vulnerable populations.
