VI. Conclusion
Economic sanctions generally and oil sanctions particularly have been a principal tool of U.S. foreign policy over the past several years. The analysis herein leads to the following conclusions.
First, because international oil markets feature many competing firms, unilateral oil sanctions are unlikely to much affect either these markets or targeted regimes though they can adversely impact U.S. firms, particularly if there are significant “reputation effects” to such firms from being subject to policy-induced constraints on their ability to transact.
Second, the lack of effectiveness of unilateral oil sanctions can lead to a desire by U.S. policymakers to make them effective through the use of secondary boycotts against foreign firms dealing with the targeted regime. Such boycotts create economic problems of their own, and also can lead the governments of other countries to undertake efforts to modify U.S. behavior rather than cooperate to achieve common policy objectives.
Third, multilateral oil sanctions can deny substantial income and hence welfare in the sanctioned country. This may be of overriding political importance and hard to achieve in other ways, short of war. At the same time, such sanctions will produce increased consumer surplus in that country’s oil markets while raising the incomes of other oil producers, including countries whose behavior the U.S. disapproves of. Such multi-lateral sanctions also can impose substantial costs on consumers, both in the U.S. and in other countries friendly to the U.S. Thus, such sanctions can have numerous undesirable side effects though in some instances (e.g. Iraq) multilateral sanctions still may be the least expensive way to achieve the desired result.
The analysis here does not attempt to assess whether oil sanctions have in fact affected regime behavior. Literature on the topic suggests that economic sanctions often have little effect, and almost never when they are imposed unilaterally. Further, the inability of oil sanctions to bear on regime behavior at the margin is a major weakness. Income effects asso-ciated with such sanctions may constrain regime behavior, but it is not always clear how these effects will operate. Thus, although there may be instances in which oil sanctions are the best means available to constrain a regime, it appears that they are an expensive and not particularly effective means to achieve foreign policy objectives. It seems, therefore, that other foreign policy tools - including longer term attempts to indirectly change regime behavior through engagement in trade and other contacts - should be considered more seriously.