Previous posts have discussed Nobel Laureate Douglass North’s comments about the importance of trade in human development, Steven Pinker’s thoughts on increased trade leading to a decline of violence, and Kyle Bass’s suggestion that a dropoff in trade leads to social unrest.
If so many agree that trade is a good thing, why do economic sanctions — one country stopping trade with another country — exist?
Economic sanctions go back at least as far as Ancient Greece, with Pericles’ Megarian Decree excluding the farmers of Megara from the markets of Athens as punishment for an offense. During the Cold War, sanctions boomed in popularity, with at least 116 cases of sanctions between 1948 and 1990. Now, sanctions are used mainly for “rogue” nations like Iran, to cut them off from the global market as punishment for bad behavior.
Just yesterday, new sanctions were imposed on Iran:
The U.S., the U.K. and Canada targeted Iran’s central bank and oil industry yesterday with sanctions aimed at cutting the regime off from international financial transactions. The actions are in response to a Nov. 8 United Nations atomic agency report concluding that previous efforts have not stopped the regime from clandestine nuclear-bomb work.
The new sanctions target companies that provide goods or services to Iran’s oil and gas industries. Existing U.S. laws have forced most international oil companies out of Iran. The new measures aim to stop it from obtaining technology and money from smaller foreign companies.
From the U.S. perspective, here’s what the sequence of games with Iran looks like:
If this looks familiar, it’s because this is the same sequence of games that occurred between Cool Hand Luke and the prison Captain. Here, Iran plays the role of Cool Hand Luke, the U.S. is the Captain.
The U.S. would prefer that Iran choose the collaborate path, but under the terms of giving up its nuclear program. Sanctions are being used to punish Iran, in an attempt to move Iran onto that collaborate path. There are two main reasons why the U.S. chooses to use sanctions, despite the long-term benefits from trade: a) Sanctions impose a punishment short of full scale war and b) Sanctions allow the U.S. to ratchet up that punishment over time.
The problem for U.S. policymakers is that they have to guess at Iran’s payoffs, just like the Captain had to guess at Cool Hand Luke’s payoffs. They even have to guess at whether Iran collaborating with the U.S. brings positive or negative payoffs.
The U.S. has gone through several rounds of this game already with Iran. Each time, the U.S. hopes a new sanction will tip the payoffs for Iran toward collaborate. That the prospect of stopping the punishment through collaboration will be better than choosing to fight.
So far, it hasn’t worked. It could be that the U.S. has guessed wrong on Iran’s payoffs. Or it could be that, like Cool Hand Luke, Iran’s payoffs from collaboration are infinitely negative. If that’s the case, Iran will never collaborate with the U.S.
The U.S. can keep going. It has at least one more way to ratchet up the pressure on Iran: stop the Iranian Central Bank from engaging in oil sales. According to some, that sanction would cripple the Iranian economy.
That sanction, like all other economic sanctions, also hurts the U.S. economy. Keeping Iran out of the oil market means oil prices rise. The U.S. gets a negative payoff from imposing economic sanctions (represented as -5 above).
What’s Iran’s answer to these latest sanctions? Iran will still fight the U.S., no matter what, they say.
It’s a drama being played out between Iran and the U.S., a cycle of ever increasing punishment with the goal of collaboration. Albeit, collaboration on the U.S.’s terms.
Will the U.S. find a punishment that pushes Iran to collaborate?
Or will Iran be the Cool Hand Luke of World Politics and never give in?