How Far Can Sanctions Hurt Trade in a Country?

Recent news reports Turkey becoming the latest target of US sanctions, with news also reporting its agreement with the US to halt Syria assault.

Here Kartik Mittal, Partner at specialist litigation and arbitration boutique law firm Zaiwalla & Co Solicitors, discusses the current trend in sanctions and examine the effects in which a country can be hurt by sanctions from a legal perspective.

As Turkey becomes the latest country to find itself in the crosshairs of US politicians, sanctions are making headlines again. It follows President Erdogan’s decision to invade north-eastern Syria after US troops withdrew from the region. President Trump did not immediately object, but under bilateral pressure, changed his mind, tweeting: “I will totally destroy and obliterate the Economy of Turkey.”

Sanctions were imposed on Turkish ministers as Trump stated that tariffs on Turkey’s steel exports would double to 50%. Following a temporary ceasefire, Vice-President Pence then announced that there would be no fresh sanctions on Turkey and recently imposed sanctions would be removed once a permanent ceasefire was implemented.

But US politicians remain divided. The House of Representatives voted by 403 to 16 to impose sanctions, while Senate Majority Leader Mitch McConnell warned that the consequent economic damage would alienate the Turkish people. Other factors have emerged: Congress is ready to impose sanctions unless Turkey abandons its Russian S-400 air missile defence systems, according to National Security Advisor Robert O’Brien.

Such farcical policy shifts do not disguise the very serious effects that sanctions can have with the US continuously using them to impose its will on other countries: Lebanon, Venezuela, Iran and, potentially, South Africa.

Historically, sanctions have delivered mixed results. When The League of Nations introduced them against Italy to persuade Mussolini to withdraw his troops from Abyssinia, he refused. And in 1941, US trade sanctions were imposed against Japan, just before Pearl Harbor. Since 1945, The UN Security Council has twice imposed mandatory sanctions: against Rhodesia’s white-minority government and South Africa’s apartheid regime. Both ultimately helped to secure peaceful regime change.

Used wisely, sanctions can therefore force a change in behaviour. But as penalties levied on another country, or their citizens, there can be unintended consequences. When the Organization of Arab Petroleum-Exporting Countries issued an embargo on oil shipments to the US, it helped exacerbate the 1973-4 stock market crash.

Embargo powers are delegated to the President while specific US laws prohibit trade with certain countries: Cuba, Iran, and Libya. Although the US imposes sanctions against multiple individuals and entities, only six countries have been subject to comprehensive sanctions: North Korea (since 1950); Cuba (1958); Iran (1979); Syria (1986); Sudan (1993): and most recently, Venezuela (2019).

The effect can be crippling. This year, Venezuela has been hit particularly hard. Shortages and hyperinflation had already taken their toll before sanctions were announced. But their imposition made things even worse, leaving Venezuela struggling to buy essential supplies for its oil industry which accounts for almost all of its exports.

A desperate humanitarian situation has developed: starvation, disease and crime have led to the emigration of several million Venezuelans. The US has been trying to oust President Maduro and replace him, temporarily, with the opposition leader. But this has not yet happened, even though Venezuela’s oil output has dwindled much further because of sanctions, reaching its lowest level for 70 years.

Sanctions take time to work. Although the immediate impact is that a country’s exports are not purchased by the country imposing the sanction, significant economic loss can take years.

Sanctions take time to work. Although the immediate impact is that a country’s exports are not purchased by the country imposing the sanction, significant economic loss can take years.

Much depends on the target country’s economic reliance on the exported goods or services. Only recently, Lebanon’s Jammal Trust Bank was forced to wind itself down as a result of US sanctions.

In October, the IMF reported that Iran is suffering ‘severe distress’ from US sanctions with GDP forecast to shrink by 9.5%. They were re-imposed last year after the US withdrew from the nuclear deal agreed by President Obama. Iran’s government has recently cut domestic gas subsidies to mitigate the impact of sanctions on oil exports which have begun to bite hard, leading to riots and more than 100 deaths across the country.  Nevertheless, the Trump administration may see this as evidence of sanctions working.

Although not visible weapons like bombs and bullets, in the worst cases, sanctions can be just as damaging on people’s lives in countries where their economic impact is severe and regimes are oppressive. The future use of sanctions therefore needs careful thought: they may be legal, but their impact can be lethal.

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