Brothers in arms: The value of coalitions in sanctions regimes
Sonali Chowdhry, Julian Hinz, Joschka Wanner and Katrin Kamin

The growing use of sanctions as a coercive economic tool to pursue foreign policy objectives has raised questions regarding their effectiveness. In Chowdhry et al. (2022), we provide novel empirical results concerning the impact of coalitions on this efficacy. To do so, we compute welfare changes experienced by sanctioned and sanctioning states under different hypothetical coalition set-ups, focusing on the 2012 Iran and 2014 Russia sanctions. These welfare changes are calculated by running simulations with a Ricardian quantitative trade model with input-output linkages where trade costs due to implemented sanction measures are drawn from structural gravity estimations.

Our key simulation result shows coalition members' average domestic welfare losses are lower when sanctions are enacted multilaterally instead of unilaterally for both Iran (-8.3%) and Russia (-9.6%) sanctions. Additionally, coordinating sanctions raises their deterrent force. Relative to unilateral action, joint implementation of sanctions raises welfare loss imposed on Iran by 4.5% for Iran and 9.3% for Russia. Thus, coalitions possess a clear dual advantage of lowering economic costs faced by its members while escalating the imposed welfare loss on sanctioned states.

Moreover, simulations reveal the current sanction coalitions against Iran (Russia) enforced 63.8% (57.9%) of the welfare loss that could be realized under a hypothetical global coalition that imposes similar measures. However, expanding these coalitions would yield considerable additional coercive power in terms of welfare loss imposed on the target regimes. This effect is observed most strongly if China is included in the coalition. In this case, welfare loss imposed by the expanded coalition on the sanctioned state is magnified (Iran: -0.77%; Russia: -0.37%). Furthermore, China itself incurs minimal welfare loss from joining the coalition, and even existing coalition members experience reduced welfare losses. Thus, China could substantially raise the coercive power of sanctions regimes without facing significant domestic welfare costs or imposing such costs on current coalition members.

Apart from China, the leading potential coalition partners that would increase the welfare loss for Russia are Vietnam (-0.15%), Belarus (-0.13%), Turkey (-0.08%), and South Korea (-0.08%). For Iran, these countries would be UAE (-0.24%), India (-0.12%), Singapore (-0.04%), and Brazil (-0.04%). Coordinating sanctions with these countries would reduce opportunities for sanction-busting and thereby increase the punitive force of sanctions regimes.

Finally, our simulations reveal sanctions impose uneven domestic welfare costs on coalition members. We therefore examine a potential burden-sharing mechanism that equalizes these losses across the coalition through a system of lump-sum transfers. Here, we find an adjustment fund totalling 591 million USD for Iran sanctions and 4.8 billion USD for Russia sanctions would fully eliminate asymmetries in the cost of imposing sanctions across coalition members, with the US being the leading transfer-sending member. Although such direct compensations are likely difficult to be institutionalized, these hypothetical relative transfers can be seen as a sanctions equivalent of NATO spending goals.

The full paper, “Brothers in arms: The value of coalitions in sanctions regimes,” is published as Kiel Working Paper No. 2234, October 2022.

Link to the working paper

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