The True Costs of Global Sanctions

Global sanctions are powerful political tools with profound global economic consequences. Sanctions impose steep barriers to international business, forcing them to navigate complex regulatory landscapes and reassess supply chains, while absorbing reputational risks by association with sanctioned regions. These economic setbacks compound financial losses, and often lead to litigation, financial penalties, and lost contracts.

In a world of growing autarky, sanctions increasingly impact global economic stability. For instance, the onset of severe U.S. sanctions against Venezuela in 2017 led to a severe revenue shortfall, with the government losing $6 billion in oil revenue alone. This was a direct hit to the country’s ability to import basic necessities, highlighting how global sanctions can devastate vital revenue streams.

But, the effects of sanctions are highly variable and depend on a variety of factors, including the economic environment, the target’s level of economic development, and how well the targets can diversify their exports. The use of sanctions is also heavily driven by politics, with voting members citing national interests and perceived security threats when choosing to impose sanctions.

As such, estimating the true costs of global sanctions requires a detailed understanding of the objectives behind the policy, as well as a clear and reliable metric to capture their success. Nevertheless, the relative ease with which sanctions can be imposed and lifted means that they remain a popular tool for many governments, and their importance should not be underestimated.