Backfire: How Sanctions Reshape the World Against U.S. Interests. Agathe Demarais. New York, NY: Columbia University Press, 2022.
“A nation that is boycotted,” declared President Woodrow Wilson in 1919, “is a nation that is in sight of surrender.”[1] As Wilson saw it, the application of economic pressure through export controls—generally referred to as economic sanctions—was preferable to open warfare.
Sanctions, as described in Agathe Demarais’ timely new book Backfire: How Sanctions Reshape the World Against U.S. Interests, have become the policy de jure for multiple presidential administrations, with more than 9,000 individuals, companies, and economic sectors targeted through 70 different sanctions programs.[2]
Even as the U.S. expanded its military profile overseas through a string of bases and foreign deployments, it has doubled-down on what historian Nicholas Mulder calls “the economic weapon,” deploying export controls and other measures against states it views as potential threats or violators of international norms.[3] Yet, as Demarais argues, the sanctions tool has served as a cudgel, rather than a scalpel, and changes in the international economic system and shifts in global geopolitics may bring the age of sanctions’ efficacy to an end.
Demarais, currently the global forecasting director at the Economist Intelligence Unit and formerly a policy advisor to the French Treasury, has worked at the forefront of sanctions policy for the last decade. This gives her unique insight into how U.S. sanctions have reshaped the global economic order. In a series of short, engaging, and clearly written chapters, Demarais breaks down why the U.S. found sanctions such an appealing policy instrument; how their widespread use in the 1990s and 2000s triggered changes and upheavals, as countries around the world coped with the issues of challenges of compliance; and, finally, how sanctions implementation has generally backfired, imposing costs on the U.S. and its allies while encouraging targeted states towards policies and strategies designed to insulate their governments and economies from U.S. pressure.
The main actor in Demarais’ story is the Office of Foreign Assets Control (OFAC), the division of the U.S. Treasury Department that oversees sanctions policy. Demarais details how early sanctions, operated through trade embargoes, were ineffective. An experiment at imposing financial constraints on a bank in Macau used by North Korea in the early 2000s formed the basis of future sanctions policy. Rather than restrict traded goods into or out of targeted countries like North Korea, Iran, Russia, or Cuba, the United States would target the country’s access to the dollar-based global financial system and go after specific actors tied to distinct economic sectors or industries.
The immediate purpose of sanctions is to limit the target’s access to dollar banking, which in turn limits their ability to access international credit or make deals with other entities. As Demarais explains, the key to the power of sanctions is the risk associated with non-compliance. It is easier for companies and governments to shun sanctioned targets rather than running afoul of OFAC. International financial institutions “could either stop conducting business” with Pyongyang, Moscow, or Tehran, “or be kicked out of the US financial system...for banks, this amounts to a death sentence, given the greenback’s global clout.”[4]
Sanctions are often effective at pushing actors out of the global financial system. But the long-term goal of sanctions policy—changing the behavior of states or punishing actors perceived to be damaging U.S. interests—is where things get complicated. As Demarais illustrates, the power of sanctions is often deployed unevenly, with unpredictable consequences. Bestriding the world like a colossus, the United States has angered or alienated allies while pushing competitors and enemies toward policies designed to avoid sanctions, all while damaging its own economic interests.
Sanctions are often effective at pushing actors out of the global financial system. But the long-term goal of sanctions policy—changing the behavior of states or punishing actors perceived to be damaging U.S. interests—is where things get complicated.
Demarais deploys countless examples to support her argument. In the case of sanctions against Iran, she notes first how the imposition of heavy sanctions in 2012-2014 seemed to yield a positive result. The Iranian people facilitated a response to sanctions policy, through the election of relative moderate Hasan Rouhani in 2013. Rouhani made a nuclear deal designed to reduce the sanctions burden a top priority of his government.
Yet even after the nuclear deal was reached in 2015, foreign companies were wary of signing agreements with Iran—both because they worried the deal would not last and because they feared running afoul of OFAC’s secondary sanctions and the penalties of non-compliance. Such fears proved well-founded, as the sanctions window closed again following the U.S. exit from the nuclear deal in 2018.
Former U.S. President Donald Trump reinstating sanctions on Iran (AFP)
The outcome of U.S. sanctions on Iran have been deleterious to U.S. interests. Iran’s government now appears disinterested in diplomacy, because any sanctions relief the U.S. offers may be terminated in the future, as it was in 2018. The goal of US policy—a nuclear deal in Iran—recedes from view while U.S. competitors like Russia and China, who have both pursued closer ties with Tehran, appear to benefit.
OFAC’s sanctions attempt to be surgical, targeting specific actors, but often have unintended consequences. In 2017, attempts to sanction Oleg Deripaska, who has ties to Russian President Vladimir Putin, spiraled out of control when they interfered with the operations of Rusal, a major aluminum manufacturer owned by Deripaska. Sanctions on Rusal sent prices for aluminum skyrocketing, jolting global supply chains.[5]
Other elements of sanctions policy present problems for analysts of international relations. Whereas the ability to impose sanctions is managed by the president, Congress frequently pushes for tougher and more indiscriminate sanctions regimes. This is a result of factors within the American political system. “Lawmakers are often under intense pressure from their constituents and from NGOs to act decisively,” writes Demarais.[6]
While the administration of President Donald Trump took sanctions policy to new heights, expanding or imposing new measures on Venezuela, Iran, North Korea, and Russia, Demarais argues the sanctions template had already been in place prior to Trump’s election. Moreover, the Biden administration has shown little inclination to change the sanctions policies of its predecessor. Adding to allies’ consternation is the apparent bias in sanctions policies. While foreign companies can be hit with large fees, when domestic firms like ExxonMobil violate sanctions the punishments are relatively benign.[7]
Demarais’ final chapters consider the use of sanctions in the context of the return of great power competition. As the United States uses economic leverage over China, including tariffs and export controls on semiconductors and other specialized technologies, Beijing counters by expanding its own semiconductor industry and exploring alternative financial channels and sanctions-proof financial practices. True decoupling is both unrealistic and immensely expensive, she argues, chiefly due to the impact it would have on American companies, which depend on China for their revenues. Nevertheless, the growing use of export controls and mounting tensions between the United States and China will create a bifurcated global economy, “one for the United States and other Western countries, and another one for China and emerging countries.”[8] Such a system would render China effectively immune from U.S. sanctions, potentially increasing the risks of open conflict breaking out. “Instead of protecting US national security,” Demarais concludes, efforts to decouple from China “may well make the world a less safe place.”[9]
Demarais’ astute analysis is both compelling and persuasive. Within its broad and ambitious scope, some elements do go unrecognized. While her attention to the role of Congress in crafting sanctions policy reflects a nuanced understanding of how foreign policy and domestic politics intersect, she neglects to mention how foreign actors—U.S. allies, clients, or other states—also intervene to influence sanctions policy. In the case of Iran, for instance, the United Arab Emirates, Saudi Arabia, and Israel exert influence over U.S. policy and press for tougher sanctions, despite evidence that they are ineffective.
While the book is exceptionally timely, its timing and concluding arguments serve to undercut its impact somewhat. Demarais finished Backfire prior to Russia’s invasion of Ukraine in February 2022, and while she accurately concludes the threat of sanctions did little to prevent Russia from threatening Ukraine, the book is necessarily silent on whether the post-invasion sanctions—including the historic G7 price cap on Russian oil exports—will prove more effective. This might serve to undercut Demarais’ general point that sanctions are fast becoming obsolete. Perhaps an updated second edition could consider these questions, which any reader will naturally have in mind as they read the book against the backdrop of Putin’s disastrous war and its rippling effects on the global economic order. Overall, however, Backfire is an engaging and enlightening read on a crucially important subject.
Gregory Brew is a historian of international oil and US-Iran relations. He is currently a postdoctoral fellow at the Jackson School of Global Affairs at Yale University, and the author of Petroleum and Progress in Iran: Oil, Development, and the Cold War and co-author of The Struggle for Iran: Oil, Autocracy, and the Cold War, 1951-1954.
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Header Image: Sanctions (World Economic Forum)
Notes:
[1] Woodrow Wilson, “Address at the Coliseum at the State Fair Grounds in Indianapolis, Indiana, September 04, 1919,” The American Presidency Project, https://www.presidency.ucsb.edu/documents/address-the-coliseum-the-state-fair-grounds-indianapolis-indiana.
[2] Agathe Demarais, Backfire: How Sanctions Reshape the World Against US Interests (New York: Columbia University Press, 2022), 3.
[3] Nicholas Mulder, The Economic Weapon: The Rise of Sanctions as a Tool of Modern War (New Haven, CT: Yale University Press, 2022), 1-26.
[4] Demarais, Backfire, 15.
[5] Demarais, Backfire, 89-95.
[6] Demarais, Backfire, 72.
[7] Demarais, Backfire, 84-85.
[8] Demarais, Backfire, 175.
[9] Demarais, Backfire, 196.