Cartoon showing disastrous effects of US sanctions. Cartoon: Andrew McNeal/Politico.
By Francisco R. Rodríguez – May 4, 2023
This paper provides a comprehensive survey and assessment of the literature on the effects of economic sanctions on living standards in target countries. We identify 32 studies that apply quantitative econometric and calibration methods to cross-country and national data in order to assess the impact of economic sanctions on indicators of human and economic development and human rights. Of these, 30 studies find that sanctions have negative effects on outcomes ranging from per capita income to poverty, inequality, mortality, and human rights. We also provide in-depth discussions of three sanctions episodes — Iran, Afghanistan, and Venezuela — that illustrate the channels through which sanctions damage living conditions in target countries. In the three cases, sanctions that restricted governments’ access to foreign exchange affected the ability of states to provide essential public goods and services and generated substantial negative spillovers on private sector and nongovernmental actors.
The use of economic sanctions by some of the world’s most important economies has significantly increased in recent decades. Their adoption is almost invariably framed in the context of attempts to deter or dissuade target governments and individuals from actions that purportedly would undermine global security, democracy, or human rights. While a considerable body of research has investigated the effectiveness of sanctions in achieving their intended objectives, much less effort has been devoted to understanding the implications of sanctions for persons living in target countries.
This paper reviews the current state of knowledge regarding the human consequences of economic sanctions. We discuss the effect of sanctions on socioeconomic conditions in target jurisdictions, including on the economy, poverty and distribution, health and nutrition, and human rights. We provide a systematic survey of the empirical literature using both cross-country panel and country-level data sets. We find a remarkable level of consensus across studies that sanctions have strongly negative and often long-lasting effects on the living conditions of most people in target countries.
We supplement this discussion with case studies that illustrate the channels through which sanctions have affected living conditions in three target states: Iran since 1979, Afghanistan since 1999, and Venezuela since 2017. These case studies help us to look more closely at the main channels through which sanctions affect the economy and living standards. They also illuminate why safeguard mechanisms, such as humanitarian exceptions, fail to offset these collateral effects.
The use of economic sanctions is on the rise
Over the past six decades, there has been significant growth in the use of economic sanctions by Western powers and international organizations. Less than 4 percent of countries were subject to sanctions imposed by the United States, European Union, or United Nations in the early 1960s; today, that share has risen to 27 percent. The magnitudes are similar when we consider their impact on the global economy: the share of world GDP produced in sanctioned countries rose from less than 4 percent to 29 percent in the same period. In other words, more than one fourth of countries and nearly a third of the world economy is now subject to sanctions by the UN or Western nations.
There is also a clear rising trend in individual or entity-specific sanctions. During the first Obama administration, there was an average of 544 new designations to the Office of Foreign Assets Control’s (OFAC) list of Specially Designated Nationals (SDNs). That number rose to 975 per year in the Trump administration and has continued rising so far (to 1151 per year) in the Biden administration.
Recent years have seen increasing concern about the continuing humanitarian effects of sanctions. In 2014, the Human Rights Council of the United Nations adopted a resolution stating it was “deeply disturbed by the negative impact of unilateral coercive measures” and “alarmed by the disproportionate and indiscriminate human costs of unilateral sanctions and their negative effects on the civilian population.”
Nevertheless, it appears clear that some of the economic and humanitarian impact of sanctions on target populations is intended. For example, a statement issued by the UK government after freezing Russian central bank assets in February 2022 stated unambiguously that “sanctions will devastate Russia’s economy.” In February 2019, Secretary of State Mike Pompeo stated in response to a question about the effects of sanctions on Iran, “Things are much worse for the Iranian people, and we are convinced that will lead the Iranian people to rise up and change the behavior of the regime.”1 Pompeo made similar statements about US sanctions in Venezuela the following month.2
From another perspective, the chair of the US House Rules Committee, Congressman Jim McGovern, wrote to President Biden in May 2021, asking him to “lift all secondary and sectoral sanctions imposed on Venezuela by the Trump Administration.” In the letter, he noted:
…the impact of sectoral and secondary sanctions is indiscriminate, and purposely so. Although U.S. officials regularly say that the sanctions target the government and not the people, the whole point of the “maximum pressure” campaign is to increase the economic cost to Venezuela… Economic pain is the means by which the sanctions are supposed to work.… it is not Venezuelan officials who suffer the costs. It is the Venezuelan people. Credible sources have consistently found that sanctions have worsened the humanitarian crisis in the country.3
Cross-national studies decisively find severe negative effects of sanctions on people in target countries
Our study summarizes the results of 32 research papers and book chapters that use econometric or general equilibrium calibration methods to assess the effects of economic sanctions on living conditions in target countries. This includes 20 studies that use cross-country panel data and 12 studies that use within-country time series or firm-level data. Nineteen of the 20 cross-country papers find consistently statistically significant adverse effects of economic sanctions on the dependent variable of interest. These include per capita income, poverty, inequality, international trade, child mortality, undernourishment, life expectancy, and human rights. One paper finds ambiguous effects of sanctions on human rights, with sanctions leading to deteriorating rights in some specifications and improvement in others. Eleven of the 12 country-level studies find negative effects on similar outcome variables. The only country study that finds the contrary result is a study using Venezuela time series import data, which we discuss in detail below.
Put together, these studies constitute an impressive array of evidence on the negative effects of both broad economic and narrowly aimed sanctions on living conditions in target countries, with most results indicating strong adverse effects and only a handful of nonsignificant results. Nevertheless, there is clearly room for more research to identify the causal mechanisms at work, as the publications surveyed were mostly written during a period in which there have been significant advances in the measurement of sanctions and evaluation of causal effects.
This paper also provides recent case studies of three economies subject to sanctions barring, or significantly impeding, international economic transactions: Iran, Afghanistan, and Venezuela. The purpose of these case studies is to provide a clearer understanding of the mechanisms through which sanctions affect living conditions in target economies, as well as how these have evolved in the recent past. For this reason, we focus on three cases in which sanctions are still in force and that can help us observe how recent developments that may not be adequately captured by cross-national data — such as the shift to personal sanctions, or the proliferation of humanitarian exceptions — have affected vulnerable groups in target economies.
Sanctions on Iran significantly reduced oil revenues, leading to import cuts and scarcity of essential goods
United States sanctions on Iran were first enacted in response to the November 1979 takeover of the US Embassy in Tehran. To this date, the 1979 Executive Order finding that the situation in Iran constituted an “unusual and extraordinary threat to the national security” of the United States remains the longest-standing US national emergency declaration. Since the United States was, by far, Iran’s largest trading partner before the revolution, the trade embargo caused significant losses. US-Iran trade collapsed immediately after the sanctions and never recovered to its previous levels, even during periods in which sanctions were eased.
The support for multilateral sanctions on Iran was bolstered when evidence surfaced in 2002 of Iran’s construction of two secret research facilities for producing enriched uranium and heavy water. Starting in 2006, the United Nations Security Council approved a series of resolutions freezing the assets of entities and persons involved in Iran’s nuclear program, prohibiting the transfer of nuclear items to Iran, and calling for restraint and vigilance on financing involving Iran and transactions with Iranian banks, including the Central Bank. Predictably, these decisions resulted in stronger compliance obligations for global financial institutions, which then had to guarantee that their operations with Iran were not supporting these banks or proxies for listed Iranian entities. Starting in late 2011, the United States and Europe imposed additional restrictions that led to the banning of the importation of all Iranian crude oil and petroleum products into Europe and the imposition of secondary US sanctions on other countries that did not commit to reducing Iranian oil imports.
The sanctions were lifted as a result of the 2015 Joint Comprehensive Plan of Action (JCPOA), in which Iran agreed to the progressive reduction of its enriched uranium stockpile and enrichment operations. In May 2018, however, the Trump administration withdrew the United States from the JCPOA and reinstated all sanctions on Iran. While the Biden administration has participated in negotiations attempting to revive some version of the JCPOA, these efforts have been unsuccessful so far.
Iran’s GDP, oil production, and export data time series clearly display marked declines following each round of sanctions. They also show some evidence that the economy has progressively become more resistant to the damage from sanctions. Studies using synthetic control methods confirm that sanctions have negatively affected Iran’s economy compared to the counterfactual that would have been expected in a no-sanctions scenario. Alternatively, calibration exercises based on partial or computable general equilibrium (CGE) models also find negative effects on living standards.
The data are strongly consistent with the hypothesis that the bulk of changes in Iran’s growth performance has been driven by changes in oil exports and production, changes that were strongly affected by sanctions. Imports declined strongly in the aftermath of both the 2011 and the 2018 sanctions, and recovered strongly after the JCPOA accords. Studies using household survey data find that rural households, belonging to low- and middle-income groups, or those headed by old and unemployed persons, had the highest likelihood of moving into poverty in the sanctions period, while households working in the public sector and those headed by highly educated persons were least likely to move into poverty.
Aside from their effects on income and poverty, there is evidence that sanctions significantly affected non-income dimensions of well-being such as health. There were shortages of 73 drugs in Iran during the sanctions period; 32 were also on the World Health Organization’s list of essential medicines. Seventy of the 73 scarce drugs fell under an OFAC general license to export drugs to Iran, suggesting that this type of authorization has little practical effect. There is abundant anecdotal evidence that imports of some approved medicines have been blocked. For example, a $60 million order to an American pharmaceutical company for an antirejection drug for liver transplants failed to reach Iran, despite having all the required OFAC licenses, because no bank would perform the transaction.
We also find that progress in reductions of mortality, stunting, and female anemia stalled considerably during the sanctions period and resumed after sanctions were lifted. Data from the Global Burden of Disease Study show a significant slowing of the rate of decrease of age-standardized disability-adjusted life years after 2011, with the most detrimental effects concentrated on noncommunicable diseases.
Afghanistan sanctions blocked access to international funds vital for the functioning of the economy
In Afghanistan, restrictions on international economic transactions date from the rise of the Taliban to power in 1996, after the prolonged civil war. The decision of almost all countries to withhold recognition of the Taliban government functioned as de facto sanctions by impeding officials from accessing assets or entering into contracts as representatives of the Afghan state. For this reason, neither the UN resolutions nor the US executive orders imposing sanctions refer explicitly to the government of Afghanistan, as there is no formally recognized Afghan government to sanction. Nevertheless, because the Taliban controlled virtually all Afghan state institutions from 1996 to 2001, sanctions on the Taliban effectively blocked access to any foreign assets and limited the ability of the Afghani government to engage in trade. A case in point: the Afghan government was unable to claim control over $254 million in gold reserves held by Da Afghanistan Bank (DAB), the Afghan central bank, at the US Federal Reserve.
Because nonrecognition acts as a de facto imposition of sanctions on a government, it makes little sense to draw a distinction between the timing of accession of the Taliban to power in Afghanistan in 1996 and the imposition of sanctions three years later. Any meaningful economic interactions between the Taliban government and other states or international organizations were precluded as of 1996. It is of course difficult to construct a counterfactual as to what economic relations with the rest of the world would have been if the Taliban had been recognized as Afghanistan’s government and sanctions not been imposed.
Furthermore, there are serious data limitations on any attempt to evaluate the aggregate performance of Afghanistan’s economy during the period of Taliban rule or to disentangle the effect of sanctions from that of Taliban rule. Aggregate data collection appears to have effectively ceased long before the Taliban takeover, generating a paucity of statistics on relevant human development outcomes. United Nations estimates indicate a decline of 76 percent in real per capita incomes between 1986 and 2001, which would put it in line with the largest economic growth collapses observed in modern world history.
Education data, despite being quite sparse, show a consistent picture of declining school enrollments, as well as a near-disappearance of female schooling during the 1996–2001 period, as the Taliban applied a nationwide ban on female education and children were increasingly recruited as combatants in the ongoing civil war. Data on infant mortality are more equivocal, partly because of the pervasive use of statistical extrapolation methods by UN agencies. Yet, it is at least consistent with the hypothesis that child mortality rates rose during the period of Taliban rule, and especially in the last two years, which included the formal imposition of sanctions and the US invasion.
Nongovernmental organizations and UN agencies were highly critical of the effect of sanctions at the time. A 2000 study commissioned by the Office of the UN Coordinator for Afghanistan concluded that UN sanctions had a tangible direct effect on the Afghan economy as well as a substantial indirect impact on the humanitarian situation. On the eve of the adoption of new sanctions by the UN Security Council in December 2000, Doctors Without Borders warned that sanctions would be devastating for a country without a functioning health care system. Even UN Secretary-General Kofi Anan seemed to lament the thrust of the resolution, stating before its adoption that it “is not going to facilitate our humanitarian work.”
The Taliban returned to power in 2021 after a major offensive that followed the withdrawal of US troops. Because both UN and US sanctions aimed at the Taliban had never been lifted, these went into force immediately, restricting any interactions with the new Afghan authorities. Similar to the situation 20 years earlier, lack of formal recognition of the Taliban government mimics the effect of government sanctions, impeding the carrying out of international legal, commercial, or financial transactions involving the Afghan government. The blocking of access to the country’s central bank assets plays an even greater role this time around. The Central Bank now has lost access to significantly larger holdings, valued at $9.6 billion, or the equivalent of nearly half the country’s GDP, and around 18 months of imports. These were effectively confiscated by the United States ($7 billion) and Europe in August 2021, after the Taliban took power.
In February 2022, President Biden formally blocked all Afghanistan central bank reserves held in the United States and issued a license enabling the transfer of half ($3.5 billion) of these to a trust fund, which was said to ensure that the money will be used for the benefit of the Afghan people. The trust fund is managed by a foundation created by Afghan nationals whom the US has accredited as representatives of the Afghan government based on their appointments to central bank management positions prior to the Taliban’s takeover of power.
Major international human rights and humanitarian groups have condemned the confiscation of more than $7 billion in assets belonging to DAB.4 John Sifton, the Human Rights Watch Asia advocacy director, said, “restrictions on the banking system of Afghanistan are really intensifying the country’s already serious human rights crisis. And they’re driving populations into famine.” David Miliband, a former UK foreign secretary and current president and CEO of the International Rescue Committee, told the US Senate: “The proximate cause of this starvation crisis is the international economic policy, which has been adopted since August and which has cut off financial flows not just to the public sector, but in the private sector in Afghanistan as well.”5 Sanctions and the blocking of access to external assets clearly exacerbate the contractionary effects of the reduction in foreign exchange inflows. Lack of access to international reserves and to emergency international assistance deprives the country of the means to stabilize its economy by smoothing external adjustment, and imposes significant costs on humanitarian agencies that would choose to remain involved despite the change in authorities. They also significantly complicate remittance transfers, which accounted for nearly $800 million in foreign currency inflows prior to the Taliban takeover.
While the Biden administration has issued a set of licenses to facilitate humanitarian transactions with the Afghan government, the licenses do not authorize contracting for services with government institutions, thus permitting interaction with the government only to the extent that it is incidental to third-party transactions. There are numerous examples, both before and after the issuance of these licenses, of sanctions constraining or impeding transactions that could have helped alleviate the Afghan crisis.
Venezuela sanctions drove a collapse in oil revenues, contributing to the largest peacetime contraction in modern history
Broad economic sanctions, beginning with limitations on financing, were first imposed on Venezuela in 2017, when the Trump administration barred financing and dividend payments to Venezuela’s government and state-owned oil company, Petróleos de Venezuela, S.A. (PDVSA). The US also used personal sanctions — first selectively imposed by the Obama administration in 2015 — to target top government officials and political figures as well as private-sector actors believed to be connected with the Maduro government. Since these designations preclude dealing with designated persons in their official capacity, they essentially brought to an end all interactions with the Venezuelan government not previously authorized by the US government.
In August 2017, President Trump issued an executive order prohibiting the purchase of new debt issued by the Government of Venezuela or by PDVSA, forcing Venezuela to default on existing obligations and impeding a restructuring of Venezuelan debt. The order also barred dividend payments to Venezuela, impeding the government from using profits from its offshore subsidiaries to fund its budget. In January 2019, the US barred trade with Venezuela’s state-owned oil monopoly and recognized Juan Guaidó as the country’s interim president, transferring to his administration control of all of Venezuela’s offshore assets under US jurisdiction. In February 2020, the US sanctioned two subsidiaries of the Russian energy company Rosneft that at the time were handling around 75 percent of Venezuela’s oil sales and the near totality of its gasoline imports. Venezuela began to suffer severe gasoline shortages shortly after Rosneft halted all trade with it and divested from its Venezuela operations in response to the sanctions.
Each round of sanctions (2017 financial, 2019 primary oil, and 2020 secondary oil) was followed by a decline in Venezuelan oil production, which, as measured by independent agencies, had been stable for an eight-year period starting in 2008. Though it had begun to decline in early 2016, prior to the 2017 economic sanctions, this decline appears to have been a consequence of the collapse in oil prices that occurred at the time and affected most other high-cost producers. But even when oil prices began to recover in 2017, Venezuela’s oil production accelerated its decline even as production stabilized or recovered in comparable economies.
Studies using trend interruption estimates and synthetic control methods all confirm that the adoption of sanctions was associated with a decline of oil production compared to a no-sanctions counterfactual. The range of estimates of these studies puts the cost of the decline at between $13 and $21 billion a year, or between two and three times the 2020 level of exports. These results are confirmed by a recent study using firm-level data to compare firms that had access to external finance at the time of sanctions with those that lacked that access. The estimates show that financial sanctions significantly affected the growth of firms with prior access to finance, explaining around 46 percent of their loss of production.
The resulting decline in oil exports severely circumscribed the ability of a traditionally import-dependent economy to buy imports of food as well as intermediate and capital goods for its agricultural sector, driving the economy into a major humanitarian crisis. Total imports fell by 91 percent, while food imports declined by 78 percent. The decline in the economy’s capacity to import made it impossible to maintain past levels of essential goods. Even if Venezuela were importing only food today (i.e., if it had decided to reduce to zero all other imports, including other essentials as well as capital and intermediate goods for its oil industry) it would not be able to pay for more than four-fifths of the food it imported in 2012.
Venezuela’s deep deterioration in indicators of health, nutrition, and food security occurred alongside the largest economic collapse, outside of wartime, since 1950. The collapse in oil revenues drove the economic contraction, which caused the deterioration in socioeconomic indicators. By contributing to lowering the country’s oil production, sanctions also contributed to lowering per capita income and living standards, and are a key driver of the country’s health crisis, including its increase in child and adult mortality.
Only one study disputes this conclusion. A policy brief published in January 2021 by ANOVA, a Venezuelan consultancy firm with links to the country’s opposition, argues that sanctions were followed by an improvement in imports of essentials, reflecting the positive effects of sanctions-induced economic liberalization. This is also the sole paper in our survey that contends that sanctions are associated with an improvement in living standards. The argument is based on the alleged finding of a break in trend at the time of the imposition of the August 2017 sanctions in ordinary least squares time series regressions that model food and medicines imports as a function of time. The study has been widely reported in the Venezuelan press and is often invoked by pro-opposition leaders and influencers.
We replicate the ANOVA results and find that they are due to an artifact of several questionable modeling choices and at least one crucial coding error. These include the choice of an arbitrary bandwidth that is three times as large as that chosen by methods standard in the literature on regression discontinuity, the specification of the dependent variable in absolute US dollars instead of the more conventional logarithmic specification used in macroeconomic time series studies, and the omission of several import categories accounting for around four-fifths of the economy’s food imports at the time of sanctions. Once these errors are corrected, any evidence of an improvement in the level or rate of change in food imports disappears. Neither close inspection of the corrected data nor a battery of statistical tests shows evidence of any sustained significant improvement in food or medicines imports following the 2017 financial sanctions.
Economic sanctions severely harm the most vulnerable
The evidence surveyed in this paper shows that economic sanctions are associated with declines in living standards and severely impact the most vulnerable groups in target countries. It is hard to think of other cases of policy interventions that continue to be pursued despite the accumulation of a similar array of evidence of their adverse effects on vulnerable populations. This is perhaps even more surprising in light of the extremely spotty record of economic sanctions in terms of achieving their intended objectives of inducing changes in the conduct of targeted states.
Attempts to redesign the sanctions regime, some of which are without doubt well-intended, can easily become distorted because of perverse policymaker incentives. Largely ineffective humanitarian exceptions are often used to falsely claim that sanctions do not impede or create obstacles to humanitarian assistance. By design or by omission, regulatory ambiguity generates incentives for generalized de-risking by private-sector actors — who can cause considerable damage to the economy and population by avoiding various commercial interactions with sanctioned countries even if there are “exceptions” that would allow them. These “exceptions” allow officials to characterize the problem as one of “over-compliance” rather than one of inadequate institutional design.
Regrettably, the populations most affected by sanctions are also voiceless in decisions about their adoption. Often, the decision to adopt or tighten sanctions responds to domestic political incentives in sanctioning countries, such as the electoral relevance of politically active diasporas in US swing states. Expanding the space of reasoned and critical public debate will be indispensable to revert this imbalance in the power to decide on the adoption of policies that can harm the lives of millions of people and cause the death of many thousands.
Read the full report here.
Notes
- Human Rights Watch (2019).
- Weisbrot and Sachs (2019).
- McGovern (2021).
- Center for Economic and Policy Research (2022).
- Afghanistan: The Humanitarian Crisis and U.S. Response: Hearing Before the Subcommittee on Near East Asia, South Asia, Central Asia and Counterterrorism of the Senate Foreign Relations Committee, 117th Congress (2022).
