Impact of sanctions are limited to the short term

This article appeared originally in Gulf News: link to original article
Are sanctions bad for a country? I have asked myself this question over and over again. And every time I do, I conclude they can’t be that bad if we haven’t heard of any country collapsing since the Soviet Union.
To back this up, I ran my first poll on Twitter for three days. Of the 3,916 votes cast, 28 per cent voted “Yes” and 30 per cent voted “No”. I find this very interesting since the “Not Sure” vote was at a staggering 42 per cent.
The latter says a lot about people actually thinking about the whole sanctions thing and whether or not it is bad, or in other words effective. With that being said, are sanctions really bad for a country?
Sanctions can be split into quite a few subcategories. Individuals can be sanctioned. Institutions can be sanctioned including, for instance, government owned banks and companies. Another way to impose sanctions could be by shutting out that country’s banks from the global financial system being managed by the Society for the Worldwide Interbank Financial Telecommunication, or SWIFT for short. (I would like to believe that SWIFT came first and then they came up with what it should stand for.)
Sanctions could be related to specific activities. Or in the case of a single country, too many illicit activities were sanctioned that the whole country became sanctioned. Now what should also be mentioned here is that when a country is sanctioned, a few of its main trading partners get specific permissions to conduct specific transactions with the sanctioned country.
I won’t be listing all sanctioned countries in this article but would instead briefly discuss the cases of Russia and Iran. When the US and the EU sanctioned individuals in Russia, the rouble was on a downward spiral, depreciating eventually by some 50 per cent.
At the time, it was repeatedly reported the Russia’s currency reserves were dwindling and that its economy was on the brink of collapse. Is it? In return, Russia sanctioned EU’s products and later on exchanged sanctions with Turkey.
Then came the low oil prices. And again it was predicted that the Russian economy would collapse. So did it?
I believe that the combination of a very low currency and low oil prices have pushed Russia towards diversifying its economy and growing every single sector other than oil and gas.
Iran has been sanctioned since its revolution with more being added year after another. The continuing depreciation of Iran’s rial has encouraged its exports from sectors other than oil and gas. With a few countries being allowed to buy a certain number of oil barrels from Iran and others paying for Iran’s products in gold, its self-proclaimed “resistance economy’ has more or less weathered the storm.
With part of the sanctions being now lifted and Iran receiving at least $50 billion of its total frozen assets with financial institutions and foreign governments, Iran can better manage the drop in oil prices while continuing to further diversify its economy and government revenues. Back to our main question: are sanctions bad?
I personally believe sanctions are bad in the short term only, that being assessed by how long it takes the country to adjust to the new facts on the ground. After that, it’s a matter of diversifying the country’s economy into all sectors other than the main exporting one.
Regardless of exemptions being given to trading partners and transactions being conducted via bartering, like payments in gold or in exports, the net result is that a country’s economy becomes much more resilient to future sanctions. In other words, the sanctions that seem to be working today, even if not with 100 per cent effectiveness, will not work in the future.
The last thought that I want to leave you with: will sanctions work if there is less reliance on the US dollar as a globally accepted trade currency?