on International Security, Commerce, and Economic Statecraft at the Center for Policy Research.He applied the “Page 99 Test” to his new book,Busted Sanctions: Explaining Why Economic Sanctions Fail, and reported the following:
From Busted Sanctions:Learn more about Busted Sanctions at the Stanford University Press website.The Emirati port city of Dubai, which was already a transshipment hub of some notoriety and hosted a large merchant community with historical ties to Iran, was well situated to take advantage of commercial opportunities U.S. sanctions created vis-à-vis Iran. Of especial importance in those efforts were the fleets of small trading vessels (known as “dhows”) at the disposal of traders in Iran and Dubai. Specific figures on how much trade was redirected from Dubai to Iran during this period are not available, nor are precise data on the types of products being traded. Figure 5.5 [available in the book], which compares U.S. exports to the UAE and the UAE’s exports to Iran, reveals corresponding increases in both during this initial round of sanctions. It is also notable that the quantity of U.S. exports received by the UAE markedly supersedes its recorded exports to Iran. Most of those surpluses were likely reexported to Iran via unreported trade. Indeed, much of the export trade between Dubai and Iran involved smuggling during this period because sanctions-busting traders sought to avoid paying customs duties on the products they sold to Iran or because the products they were exporting had been prohibited by Iran’s Revolutionary Government. Recognizing that lost tax revenues from smuggling posed a large problem for its weak regime, the Iranian government responded by forbidding private importers from bringing goods into the country in 1980. Instead, it mandated the use of state-run import offices. The Iranian government was much too weak to enforce this policy, however, and such restrictions were often easily evaded by smugglers. Although trading with Iran was perfectly legal in Dubai, the Iranian government created additional incentives for sanctions-busting traders to keep their transactions off the books.Within my book Busted Sanctions, I seek to explain why the world’s most powerful and prolific user of economic sanctions—the United States—so often has its sanctions end in failure. I argue that the responses of other countries around the world can play a major role in undercutting the effectiveness of U.S. sanctioning efforts via the trade and aid they provide to sanctioned states. As my book explains, economic sanctions can create lucrative commercial opportunities for firms in some countries that can lead them to substantially increase their trade with sanctioned states. The emergence of even one of these trade-based sanctions busters can dramatically reduce the likelihood of U.S. economic sanctions being successful.
One of the major cases that my book explores is how Iran became incredibly effective at circumventing the United States’ economic sanctions. Since the very beginning of the U.S. sanctioning effort against Iran in 1979, the United Arab Emirates (UAE) has served as one of Iran’s primary sanctions-busting trade partners. The emirate of Dubai, in particular, emerged as the best place in the world for Iranians to purchase products that U.S. sanctions denied to them.
The passage on page 99 recounts the origins of how the UAE-Iran sanctions-busting relationship developed after the U.S. Government sanctioned Iran in response to the hostage crisis. U.S. sanctions prohibited most U.S. firms from directly exporting products to Iran. In response, many major shippers that had U.S. products destined for Iran ended up dropping of their goods in nearby Dubai instead. Once the goods were in Dubai, they ended up being ferried across the Persian Gulf by a network of regional traders in tiny vessels called dhows. Dubai quickly gained notoriety as the chief diversionary point for U.S. goods whose end-destination was Iran but which could no longer be shipped directly to the country. U.S. exports to the UAE thus spiked upwards in 1980, which corresponded to a somewhat lesser uptick in UAE exports to Iran. The excerpt on page 99 is part of my explanation of how smuggling accounts for the lion’s share of the gap between the two. What is so fascinating about this particular case is that Iran’s Revolutionary Government initially resented the smuggling that was taking place on its behalf, despite the fact that it was ameliorating the sanctions’ ill effects on Iran’s economy. By October of 1980, however, the Iranian Government quickly back-tracked on its policies and came to embrace and rely upon its sanctions-busting trade relationship with Dubai. My book tells the decades-long story of the sanctions-busting relationship between the UAE and Iran, in addition to explaining the broader phenomenon of why U.S. allies like the UAE actively undercut U.S. economic sanctions.
--Marshal Zeringue
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