on the necessity of economic sanctions....
In the toolbox of diplomatic reactions, economic sanctions - either formal or informal - have always featured prominently. Of late, it has been the U.S. that has been threatening 'non-compliant' states with this option or actually implementing it, particularly in light of its already stretched military resources and the inability to throw funds at any more conflicts, given the ongoing war in Iraq and the strengthening couter-insurgency in Afghanistan. Over the past years, economic sanctions have been imposed on Saddam's Iraq, on Ahmadinejan's Iran, and a host of smaller states which were ideologically not alligned with the rest of the international community, or just some of this world's powerful...all with more or less, signigificant if not outright disastrous consequences.
Almost ten years later, the image of suffering Iraqi children is still fresh in our collective memory. The impact of economic sanctions is not only rhetorical and imagined, but has been also quantitatively substantiated. In a seminal 2005 study titled Economic Sanctions Reconsidered, the authors found that the average cost to a target country in a ‘success’ case was 2.4% of GNP and in a ‘failure’ case 1% of GNP. This and other research demonstrates that economic sanctions are no laughable matter, hence their effectiveness in twisting the arms of unwieldy politicians.
That being said, one can ask whether their effectiveness has been on the decline? Sanctions have been recently levied on Iran, and subsequently on Syria, without the same impact as earlier sanctions have had. This may be explained in terms of improved regional cooperation in the middle east, which implies ongoing strong economic relations with countries under sanctions. UAE and Iran, despite technically being in conflict over the islands which they dispute, and despite promoting different streams of Islam, are reported to have a strong and growing economic cooperation. Iran and Syria, while both under international economic sanctions, also have strong economic cooperation, with growing FDI and trade.
In the context of our new multipolar world, where there is always a careless lad on the block who does not really care about the moral wrongs of the 'sanctioned country' (i.e. China in Africa or UAE in Iran), what is the future of sanctions, and are there indeed any alternatives? Well, looking at the unravelling economic crisis in Russia, reported to be the worst since the 1998 banking crisis, I daresay there is. What's best about it, that the alternative is not even part of the 'nasty responses' in the toolbox of diplomatic reactions, it's a natural market reaction. Perhaps these Adam Smith inspired market equilibrium folks are onto something, maybe the markets do self-correct!
Let's have a quick look at the evidence only a few weeks after Russian invasion of Georgia. The Russian stock markets fell by over 50% since May. Capital flight led to two day closure of all Russian stock markets to halt the panic sale of equities. On September 11, the Russian central bank injected $10bn (£5.7bn) into the banking system to alleviate a chronic credit shortage. Further injections will be necessary and apparently budgeted for, as both direct and portfolio investors flee the country. The government announced a plan to boost liquidity by more than $100bn after the biggest market crash in a decade.
Likewise, foreign investors, uninspired by the latest news from the TN-KBP case are also reconsidering. RWE, the German utility, said it was pulling out of a deal to buy a stake in TGK-2, a Russian regional power generator, blaming the cost of the transaction and the turbulence in the country's financial markets. What's perhaps even more important, economic tensions, finally seem to result in a dialogue between the various factions in Kremlin, giving Putin less chance to shut off opposition forces (if they can be so qualified). Given that Putin's power rests ultimately on his promise to be able to deliver Russian out of Yeltsin's oblivion, this is not a threat to be taken lightly.
All this forces an interesting question: why go though the whole shabang of UN Economic Council unanimous decision making to levy sanctions, which have increasingly smaller impact when there seem to be easier and more effective opporunities? Perhaps in the future, certain political actions can have a natural market consequences, which force the regimes in question to change their political direction. Judging from the Russia case, this is certainly plausible. Of course, the caveat to the Russia case is that it is a regime that not only likes to tinker with neighbouring regimes and opponent political parties, but also with shareholder rights and rights of foreigners, all so very intricately related to the interest of foreign private investors into Russia. The good news for the international community, is that disrespect of agreed upon agreements (i.e. respect for Georgia's sovereignity) is often accompanied by disrespect of private ownership rights. A conclusion that then begs itself: goodbye sanctions, hello market democracy!
Sunday, September 21, 2008
Wednesday, September 03, 2008
On the return of the bipolar power dynamics in the Middle East
Act Number One. Everything in the Middle East is Moving, and Everyone is Negotiating for Something.
Since the Euromed summit re-uniting all of the ‘democratically elected’ Arab leaders of the Mediterranean countries in Paris in July, the rentrée of Bashar Al Assad to the diplomatic scene has been hailed as a sign of a new ‘damascus spring’. Newspapers are buzzing of the normalisation of the relationship between Syria and the West just as they were a few months before on the normalisation of relationship between Libya and the West since Qaddafi’s visit to Paris, where he received royal welcome (including, of course, being able to erect a tent in the garden of the Sarkozy’s official residence). Observers point to the establishment of embassies between Lebanon and Syria, and the re-launch ( at first secret, and now increasingly public) of the peace negotiations between Israel and Syria, as signs of this ‘spring’. That may well be true, though of course the thorny issues between Syria and its satellite - Lebanon (including, inter alia, Hezbollah) - are far from being resolved. Neither is the longstanding dispute between Syria and Israel - principally about Golan Heights, but also about more complicated questions such as...again, the Hezbollah – about to be resolved. Syria has recently come out publicly to say so much, noting that no serious negotiations can occur while a certain Mr. Bush Junior is still located in a certain disclosed location called the White House.
Act Number Two. Pause all Negotiations. Enter Russia.
Putin’s presidency (and his continued virtual presidency) has not gone unnoticed, not only in Europe, where the 27 EC member states cannot agree on the level of sanctions against Russia following the Georgia crisis, but also in the Middle East. Since the deeply unpopular in the Middle East American war in Iraq, Russia has positioned itself in the region as an viable alternative to US power. Russia’s support is now indispensible in negotiating with Iranians over their nuclear regime, where Russia is building the Bushehr nuclear reactor. A similar deal was more recently (March 2008) signed with Egypt, clearing the way for Russia’s involvement in Egypt’s nuclear energy industry. Given the desire for nuclear energy expressed by Jordan, Bahrain, UAE and other MENA countries, Russia is back in the game. And it has more to offer than just nuclear capabilities. Bilateral trade agreements have been concluded at a breaking speed, tying the two regions not only militarily, but also economically.
So far, Russia’s power game in the Middle East has been more subtle than not. Last week, it has gotten significantly more blunt and aggressive. Following Russia’s allegations of US and ‘zionist’ support of the ‘Georgian-initiated aggression’, the all-too-well-timed to appear spontaneous trip of Putin to Syria demonstrates the return of the Cold War dynamics – the emergence of bipolar politics in the region, as if it did not have enough issues to deal with already. During the Syria visit, Russia has clearly raised its voice a notch. By changing its approach from one favouring a signature of cooperation agreements and ambiguous nuclear deals to one which threatens to provide direct military support to ‘hopefully spring’ states as a retaliation tactic, it is signaling a new role for Russia in the Middle East.
Act Number Three. The Bipolar Middle East
This role broadens the ambitions of Russia’s policy, which previously used its good old military capabilities as a source of potential revenue, and which now uses them as a means of re-shaping, or shall I say, solidifying existing alliances. Russia’s agreement to sell high-tech missiles to Syria as a retaliation for Israel’s alleged participation in the Georgian conflict is the direct evidence of this shift of policy. This strategy furthers the objectives of both for Russia and Syria – Russia because the West will eventually need it even more in negotiating with ‘rotten apples’ states, Syria because it sees a boosted military capability as a means to have a more balanced negotiating field with Israel.
US engagement with the Middle East and its crusade on the ‘war on terror’, which seems bunch together include your innocent muslim neighbor and an al-qaeda operative has without a doubt been a fiasco. As Francis Fukuyama points out in today’s FT (Russia and a New Democratic Realism, September 3, 2008), “one of the chief ways the US power has been diminished in this decade is in its moral credibility.” Indeed, moral credibility can be questioned when the US remains the only UN member to boycott the international treaty calling for the stop of the sales of weapons to ‘pariah’ states. In the Middle East, more than in any part of the world, American inability differentiate its actions from ‘the war on terror’ from ‘the war on islam’ has put the nail in the coffin - coffin of the American reputation in the Middle East.
That being said, the role of Russia in the region is not likely to be a positive one, least that statement be informed from historical facts. The Middle East is yet to re-discover the impact of the emerging alternative. When the Lebanese will discover not only the Russian Kalashnikovs peddled by the Eastern European arms salesman, but also more serious munitions sold by the Russian state, the re-discovery of the role of the ‘new Russia’ in the ‘new Middle East’ will truly re-commence.
End of Play.
Act Number One. Everything in the Middle East is Moving, and Everyone is Negotiating for Something.
Since the Euromed summit re-uniting all of the ‘democratically elected’ Arab leaders of the Mediterranean countries in Paris in July, the rentrée of Bashar Al Assad to the diplomatic scene has been hailed as a sign of a new ‘damascus spring’. Newspapers are buzzing of the normalisation of the relationship between Syria and the West just as they were a few months before on the normalisation of relationship between Libya and the West since Qaddafi’s visit to Paris, where he received royal welcome (including, of course, being able to erect a tent in the garden of the Sarkozy’s official residence). Observers point to the establishment of embassies between Lebanon and Syria, and the re-launch ( at first secret, and now increasingly public) of the peace negotiations between Israel and Syria, as signs of this ‘spring’. That may well be true, though of course the thorny issues between Syria and its satellite - Lebanon (including, inter alia, Hezbollah) - are far from being resolved. Neither is the longstanding dispute between Syria and Israel - principally about Golan Heights, but also about more complicated questions such as...again, the Hezbollah – about to be resolved. Syria has recently come out publicly to say so much, noting that no serious negotiations can occur while a certain Mr. Bush Junior is still located in a certain disclosed location called the White House.
Act Number Two. Pause all Negotiations. Enter Russia.
Putin’s presidency (and his continued virtual presidency) has not gone unnoticed, not only in Europe, where the 27 EC member states cannot agree on the level of sanctions against Russia following the Georgia crisis, but also in the Middle East. Since the deeply unpopular in the Middle East American war in Iraq, Russia has positioned itself in the region as an viable alternative to US power. Russia’s support is now indispensible in negotiating with Iranians over their nuclear regime, where Russia is building the Bushehr nuclear reactor. A similar deal was more recently (March 2008) signed with Egypt, clearing the way for Russia’s involvement in Egypt’s nuclear energy industry. Given the desire for nuclear energy expressed by Jordan, Bahrain, UAE and other MENA countries, Russia is back in the game. And it has more to offer than just nuclear capabilities. Bilateral trade agreements have been concluded at a breaking speed, tying the two regions not only militarily, but also economically.
So far, Russia’s power game in the Middle East has been more subtle than not. Last week, it has gotten significantly more blunt and aggressive. Following Russia’s allegations of US and ‘zionist’ support of the ‘Georgian-initiated aggression’, the all-too-well-timed to appear spontaneous trip of Putin to Syria demonstrates the return of the Cold War dynamics – the emergence of bipolar politics in the region, as if it did not have enough issues to deal with already. During the Syria visit, Russia has clearly raised its voice a notch. By changing its approach from one favouring a signature of cooperation agreements and ambiguous nuclear deals to one which threatens to provide direct military support to ‘hopefully spring’ states as a retaliation tactic, it is signaling a new role for Russia in the Middle East.
Act Number Three. The Bipolar Middle East
This role broadens the ambitions of Russia’s policy, which previously used its good old military capabilities as a source of potential revenue, and which now uses them as a means of re-shaping, or shall I say, solidifying existing alliances. Russia’s agreement to sell high-tech missiles to Syria as a retaliation for Israel’s alleged participation in the Georgian conflict is the direct evidence of this shift of policy. This strategy furthers the objectives of both for Russia and Syria – Russia because the West will eventually need it even more in negotiating with ‘rotten apples’ states, Syria because it sees a boosted military capability as a means to have a more balanced negotiating field with Israel.
US engagement with the Middle East and its crusade on the ‘war on terror’, which seems bunch together include your innocent muslim neighbor and an al-qaeda operative has without a doubt been a fiasco. As Francis Fukuyama points out in today’s FT (Russia and a New Democratic Realism, September 3, 2008), “one of the chief ways the US power has been diminished in this decade is in its moral credibility.” Indeed, moral credibility can be questioned when the US remains the only UN member to boycott the international treaty calling for the stop of the sales of weapons to ‘pariah’ states. In the Middle East, more than in any part of the world, American inability differentiate its actions from ‘the war on terror’ from ‘the war on islam’ has put the nail in the coffin - coffin of the American reputation in the Middle East.
That being said, the role of Russia in the region is not likely to be a positive one, least that statement be informed from historical facts. The Middle East is yet to re-discover the impact of the emerging alternative. When the Lebanese will discover not only the Russian Kalashnikovs peddled by the Eastern European arms salesman, but also more serious munitions sold by the Russian state, the re-discovery of the role of the ‘new Russia’ in the ‘new Middle East’ will truly re-commence.
End of Play.
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