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Journalism of Courage
Ordinarily, one may not find much in common with Urjit Patel, the author of this book.
He is, after all, a former Governor of Reserve Bank of India, and is currently serving as Executive Director at the International Monetary Fund (IMF). Perhaps even more importantly, he is the man on whose recommendation India has adopted a new framework for setting interest rates in the economy. But more than any of these exalted positions, he is considered to be one of the best Indian macroeconomists.
And yet, just like you and I, he did not care much about economic sanctions until a few years ago.
“Prior to to 2022, I paid as much attention to the subject of sanctions as I did to news of meteor showers. In other words, I ignored both,” writes Patel at the very start of his book on — well, sanctions.
Economic sanctions are different from tariffs, which is now a word that everyone in the world knows about thanks to US President Donald Trump.
What are sanctions
Sanctions is umbrella term for all manners of curbs — be it on trade, shipping, banking and financial flows etc. Unlike tariffs, however, very little is understood about economic sanctions. But as this book reveals, economic sanctions are growing at an alarming rate and they have the power to alter global economics and geopolitics.
“If war is the pursuit of diplomacy by other means, economic sanctions are an instrument to inflict damage by an alternative agency,” writes Patel. He says sanctions are akin to laying a slow burning siege of an economy.
US sanctions on buying Russian oil
Before you think none of this may have anything to do with India, consider a real life example: US sanctions on India buying Russian crude oil.
In August, to build pressure on Russia to agree on truce with Ukraine, among other actions President Trump imposed 25% penal tariffs on India for buying crude oil from Russia. Around late October, the US put sanctions on two of Russia’s largest oil companies — Rosneft and Lukoil. These sanctions essentially meant that all property and interests in property of these companies that are in the United States or in the possession or control of U.S. persons were blocked. In addition, any companies that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked companies were also blocked. Furthermore, if any firm transacts with these two companies they may incur “secondary sanctions” by the US.
What was the net result?
India’s oil purchases from Russia have essentially ended; before the sanctions Russian oil accounted for almost 30% of all oil imports. What’s more, last week Indian government seemed to celebrate that Indian public sector oil companies would now be buying LPG from the US.
In essence, economic sanctions (in the form of penal tariffs on India and seizing of Russian assets) have altered the policy choices of a sovereign country.
US sanctions on Iran
Take another example when such sanctions have hurt India: The case of Chabahar port in Iran. In 2003, talks started between India and Iran to develop the port with Indian investment. This port was of great strategic importance for India as it bypassed Pakistan (a country with seeming unending conflict with India) to give direct sea access to Afghanistan and countries in Central Asia.
But in 2003 itself US put sanctions on Iran and talks stopped. Then they were revived in 2015 when US eased sanctions under the Iran nuclear deal. In 2016, a tripartite agreement between India, Afghanistan and Iran was signed and in 2017 the first shipment of Indian wheat to Afghanistan was unloaded in Chabahar.
Then in 2018, President Trump withdrew US from the Iran nuclear deal and reintroduced sanctions. This again limited operations at Chabahar port.
In 2024 — more than twenty years after the initial talks — India signed a 10 year agreement with Iran to develop and operate Chabahar port but not without the US warning India that it is opening itself up for secondary sanctions on itself.
What is the cost of US sanctions on Iran for India? Patel provides a detailed estimate in an appendix: A cumulative financial cost of $1.1 – 1.4 billion. This does not include, Patel points out, the broader opportunity costs like reduced trade volumes with Afghanistan, lost regional influence or strategic costs of delayed regional connectivity.
So what’s the point?
Patel underscores the following points and areas of further inquiry in this book.
One, that policymakers, research organisations and institutions such as the IMF and media (if not the general population) need to wake up to the reality of economic sanctions, which now “are a substitute of military war for lining up diplomatic agendas. The nature and scope of sanctions — and secondary sanctions, which are imposed on third parties like India in the Russian oil case above — needs to be analysed in an unbiased and transparent manner.
Two, there is need to understand whether these sanctions work or not and if so to what extent. According to the Threat and Imposition of Sanctions (TIES) dataset, 82 percent of imposed sanctions between 1945 and 2005 produced only minor costs to the target states. “On the face of it, if something is not working there should be less of it, not more. And yet there is no drop in the number of new sanctions; in the 1990s the number of sanctions were 270; 2000-2009: 213; and 2010-2023: 696,” points out Patel.
Three, there is need to go beyond the US or G-7 centric view. That’s because mostly it is the US (with G-7 acting in concert) that led the slapping of sanctions with virtually no guardrails. More often than not the targets are emerging economies especially in Asia.
Lastly, there is a need to understand the long-term and often unintended consequences of such sanctions. For instance, secondary sanctions on India over the purchase of Russian oil pushed India closer to China and Russia. Similarly, US sanctions on Chinese tech companies like Huawei and SMIC to prevent the transfer of semiconductor chips may have actually hurt the US with even Nvidia CEO Jansen Huang saying that “export control was a failure”.
Buyers beware
There is no doubt that Patel has written a very important book highlighting a topic that deserve far more attention both from experts and media.
But, for lay readers — like the ones mentioned at the start — the book is fairly technical both in its substance and language.
For instance, if you really want to read all the chapters, you would do well to brush up on your graduate-level mathematical economics concepts.
As for language every few pages you will encounter sentences such as: “China, Eurasia and the transitivity of geography spawned by the physical proximity are significant elements” or “The doubt and fear engendered by the frequency of fresh sanctions is non-trivial with its inbuilt ‘extra turn of screw’ bias”.
