Modern Warfare of Sanctions

Some days ago when the Crimean territory was annexed by Russia it led to the revival of the Cold War discussions. Ukraine, of course aggrieved with this Russian annexation asked for help from the European countries along with the US. The negotiations went on for a few days as to returning Crimea to Ukraine.

Soon, Crimea just remained a reason for the talks. The talks were now about steps to prevent further Russian expansion. The western media was portraying Vldamir Putin as a radical nationalist dictator who would go to any extent to regain control over the historical soviet territories. Nobody was talking about getting Crimea back to the Ukranians. It made the world paranoid of another confrontation between two mighty Nuclear Powers. Thus, it was not Russia or Vldamir Putin as is generally portrayed but the USA and the western media who revived the war talks and made Global Powers apprehensive.

Luckily for the World the stand-off never blew to be full-fledged nuclear confrontation and humanity was saved from seeing another bloody war. What is interesting though is how such confrontation was prevented. If one is to analyze the United States Foreign Policy or the Foreign Policy of any Western Power, one would realize that there has been a considerable shift in the way rogue powers are dealt with. The US and the other powerful western countries have had a bitter experience of direct participation in a war. Losing their men, machines and money the countries are now trying alternative strategies to effectively deal with rogue powers.

The strategy that these countries are using is that of ‘sanctions’. The Global Economy has become largely interdependent in the last decade or two. No country is self-sufficient and is heavily reliant on trade with other countries for a decent growth of its economy. Most of these trade involves import of cheap consumer goods from the manufacturing-intensive countries and export of natural resources like oil and gas.

The US adopted these strategy to successfully counter a nuclear powering Iran or North Korea. Iranian economy is largely dependent on the export of its oil to countries like India. Sanctions on Iran meant that US companies and companies from other countries who are part of this Sanctions regime cannot do business with Iran or an Iranian company. This means that fewer number of companies to insure the shipments from Iran. It also means reduced markets for sale of Iranian gas, allowing other buyers to leverage it to negotiate reduced prices with Iran.

Another reason why US Sanctions work is because, Global trade generally happens in US Dollars. Now sanctions by US means that the countries can not trade using the US Dollar. Take again for example, the Indian import of Iranian oil. Prior to the sanctions, India paid Iran through an escrow account in Iran in Dollars. After the sanctions, India has been paying Iran in Rupees which can be spent only in India on Indian goods and products. This is like “Big Bazaar will offer you a cashback. CONDITION: You can spend it only at Big Bazaar”. Further, sanctions against Iran means less buyers for the Iranian oil. Thus, more scope for India to bargain the price of Oil. Thus, US Sanctions also benefit the nations which are not part of the Sanctions regime. Bingo. Now these countries also start complying with the sanctions! (Iran’s GDP fell approximately by 6% and its inflation was close to 39% last year.)

The US and EU have imposed sanctions on Putin’s aides (members of the alleged ‘oligarchy’). The sanctions are aimed at freezing assets and imposing travel bans. The have been effective as both, the Russian Stock Market and the Russian currency , rouble have fallen after the sanctions. Also major credit rating agencies have downgraded Russia’s growth forecast for the year. According to S&P estimates, $60bn worth of investment has already left the country leaving the economy weak.

Sanctions and Trade Embargoes have been used as aggression-counter-strategy since a very long time. It was used against India, too; result of the nuclear tests at Pokhran during May, 1998. But never have they been so effective as they are now.  According to the study published by the Pitersen Institute finds that sanctions work as much as one third of the time. It seems that with the rapidly increasing global economic interdependence, economic interests thrive over radical nationalism.



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