Backfire by Agathe Demarais (preface)

PREFACE

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n 2002 a brutal civil war was raging in Sudan. In an attempt to force Khartoum to start peace talks with the opposition, members of the U.S. Congress discussed imposing sanctions on energy firms working in the African country. The reasoning of the American lawmakers was simple: the threat of sanctions might be sufficient to persuade the Sudanese government, anxious to avoid an exodus of foreign businesses from Khartoum, to negotiate with the rebels. Congress decided that the best way to pile the pressure on Sudan’s rulers was to impose innovative measures preventing the global oil companies that did business with Sudan from raising capital on U.S. financial markets.1 The U.S. administration fiercely opposed Congress’s proposal, fearing that such sanctions would ultimately hurt America. They would in any case have been largely symbolic; amid the devastation brought by the conflict, only three companies—from Canada, China, and Sweden—were still operating in Khartoum. Yet barring foreign businesses from tapping U.S. financial markets appeared to run counter to Washington’s long-held commitment to the free movement of capital, one of the ingredients of America’s economic success. Skeptics pointed out that to escape American sanctions, multinationals could also be tempted to raise debt or issue stocks in other financial centers such as

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London, Singapore, or Tokyo. It looked like Washington was going to shoot itself in the foot. In the end, Congress shelved its proposal.

The controversy over the Sudan sanctions started a debate about sanctions overreach. Since then, the discussion has never stopped. It has become even more intense in recent years as coercive economic measures, such as trade tariffs, financial sanctions, and export controls, have become the bedrock of U.S. diplomacy. However, trouble is looming.

The over-use of sanctions is fueling resentment against Washington around the world, leading U.S. friends and foes alike to rethink their ties to America and find alternative avenues for doing business. This is exactly what critics of the Sudan sanctions had feared.

R It is not surprising that sanctions have become so popular over the past two decades: they have many selling points. For one, they are a quick way for the United States to demonstrate resolve and punish bad behavior. After Russia invaded Ukraine in 2022, it took Washington less than two days to impose penalties on Moscow. In addition, sanctions are a low-cost policy. Only a handful of civil servants are needed to draft sanctions. The burden of implementing U.S. sanctions falls on multinationals and banks, which shoulder lost opportunities and compliance costs.2 The immediate political and human costs of sanctions also appear to be low, making them more attractive than other forms of coercion, such as military intervention. Sanctions fill the void in the diplomatic space between ineffective declarations and potentially deadly military operations. With sanctions, the U.S. administration can pressure countries to comply with its demands from the safety of Washington. When journalists asked Treasury Secretary Steven Mnuchin what the United States could do to halt Turkey’s attack against the Kurds in Syria in 2019, his default response was to invoke sanctions: “We can shut down the Turkish economy.”3 Finally, U.S. sanctions have proven to be effective in persuading countries to alter their behavior. Iran is a case in point. If sanctions had not put

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tremendous pressure on the Iranian economy, it is doubtful that Tehran would have ever agreed to sign the 2015 nuclear deal. An added bonus is that sanctions tend to boost the approval ratings of policy makers who impose them.4 It is therefore not surprising that Congress has long been the most enthusiastic backer of sanctions; politicians have constituents to please, and appearing to act decisively to defend U.S. interests is usually a vote winner.

R I discovered sanctions while working as a financial attaché for the French Treasury in Moscow in 2014. I had a crash course in sanctions after Russia illegally annexed Crimea and started to back separatist rebels in eastern Ukraine. I continued to develop my knowledge of sanctions in my next posting, at the French embassy in Beirut. From there, I followed economic and financial developments in 15 Middle Eastern countries— including several that were under U.S. sanctions, such as Iran, Iraq, Lebanon, Syria, and Yemen. I spent around half of my time on the ground, having long conversations with government officials, businesspeople, and ordinary citizens about life under sanctions.

I was covering Iran when the nuclear deal was signed in 2015. However, the excitement of seeing this landmark agreement being signed soon gave way to frustration. Despite the lifting of sanctions, European firms remained wary of reentering the Iranian market; they all thought the United States would not stay true to its word and would soon reimpose sanctions on the Islamic republic. This was a problem: getting European companies to return to Iran was the main way of convincing Tehran that it had done the right thing by signing the deal and that it should abide by its terms for the Iranian economy to recover. Yet it proved impossible to persuade most Western firms and banks to start doing business with Iran once again.

The Iranian example shows how the threat—real or perceived—of U.S. sanctions has become a key factor influencing global business strategies. In retrospect, European companies were proved right in their decision not to go back to Tehran; under the Trump presidency, the

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United States unilaterally exited the nuclear deal in 2018 and reimposed crippling sanctions on Iran shortly afterward. By then, I had moved to London and joined the Economist Intelligence Unit, where I continue to keep a close eye on sanctions.

R Iran’s example is not unique. Over the past decade, I have seen firsthand how sanctions have come to play a major role in the lives of millions of people and in companies around the world, both in sanctioned and—importantly—sanctioning countries. This is only part of the story.

Sanctions also reshape relations between countries and, in turn global geopolitics. Few, if any, foreign policy tools have as big an impact as sanctions. Yet the ripple effects of sanctions remain understudied. In fact, only defense experts appear to have an interest in the side effects of sanctions; they are largely ignored by economists and political scientists.

This book is not for or against sanctions. It does not take a view on whether the United States should resort to sanctions when it feels that its interests are being threatened. However, if it wants to ensure the long-term effectiveness of arguably its most powerful economic weapon, America has to build a clear picture about the side effects of sanctions and of how these shape the strategies of companies, allies, and enemies across the world.

PRAISE FOR

BACKFIRE

“Sanctions are in fashion. Trump used them with relish. Biden has deployed formidable ones against Russia. But do they work? And what are their side effects and long-term impact? These are critical questions, and Agathe Demarais’s excellent, clear-headed book has uncomfortable answers.”

—DANIEL FRANKLIN, EXECUTIVE EDITOR, THE ECONOMIST

“Backfire is a balanced, fast-paced, and often surprising account of the growing influence that sanctions have had on businesses, economies, and people around the world over recent decades, highlighting their often unintended and self-defeating consequences as well as their rare successes.”

—PAUL HANNON, THE WALL STREET JOURNAL

“With the knowledge of an expert and the tight prose of a journalist, Demarais has written a fast-paced, well-articulated review of the difficulties, risks, and unintended consequences of using sanctions. This book should be added to university curricula and personal reading lists alike.”

—RICHARD NEPHEW, AUTHOR OF THE ART OF SANCTIONS: A VIEW FROM THE FIELD

“Linking her knowledge of international sanctions to a fascinating, lively account of their far-reaching effects (including humanitarian), Demarais provides a powerful and compelling narrative of the overuse of sanctions by the United States for the past decade. An indispensable read to dive into international relations through an original and timely prism.”

—JULIEN NOCETTI, SAINT-CYR MILITARY ACADEMY

COLUMBIA UNIVERSITY PRESS NEW YORK cup.columbia.edu

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