IV. The Impact of Oil Sanctions in Other Markets
Some of the economic impacts of oil sanctions reach beyond oil markets, to complementary and substitute goods and to other products. These are briefly analyzed here under the assumption that sanctions are effective, raising the oil price above what it otherwise would be.
As mentioned earlier, other oil producers will receive higher incomes. Producers of substitute forms of energy such as natural gas and coal also will benefit, as demand for their goods is enhanced. At the same time, producers of complements such as oil-using capital goods (airplanes, trucks) will be adversely affected. In addition, if there is specific capital used to produce or transport a targeted country’s oil to market (e.g. a pipeline through Turkey in the case of Iraq) the owners of such capital will be harmed.
With higher oil prices, suppliers to the oil exploration and production markets benefit. For example, suppliers such as oil well service firms and drillers are helped as firms in non-targeted countries seek to expand supply. Suppliers of oilfield services to the targeted country’s production operations are adversely affected, but suppliers to other countries’ production operations are helped.
Another group affected by oil sanctions are those who export other, non-oil goods and services to world markets. Because the targeted country loses income its overall demand for others’ exports falls. However, de-mand elsewhere, in other energy exporting countries, would rise. Simi-larly, producers of oil complements will demand less in world markets. Exactly which suppliers are affected, both positively and negatively, depends on the particulars of the targeted country’s market versus those of other energy exporters and complementary goods producers.
It is difficult to take this analysis further without specifying various countries’ underlying production functions and trading patterns. Such modeling is difficult because of data requirements and ever changing market conditions. However, such difficulty poses a serious problem for oil trade sanctions. If general equilibrium considerations are ignored, it is possible that other regimes whose behavior the U.S. desires to modify are helped by the sanctions while regimes the U.S. may be seeking to encourage are adversely affected. Sometimes the effects are plain to see (e.g. the effects of Iraq oil export sanctions on Turkey) but often they will be more subtle and harder to identify. Also, if oil sanctions confer eco-nomic benefits on other countries, they may be motivated to advocate such sanctions quite apart from their effects on the behavior of the targeted regimes.