Coercive Diplomacy and the New Financial Levers: Evaluating the Intended and Unintended Consequences of Financial Sanctions

Abstract

One of the most promising emerging levers of coercive statecraft is the ‘reputational’ financial sanction. These sanctions, recently employed by the United States against Iranian and North Korean banks, aim to chill investment into these countries by threatening the financial reputations of legitimate institutions in an interconnected world. Yet much about these sanctions remain unknown. What are the causal mechanisms by which they operate? How effective are they? Do they have blowback effects? Using interviews with senior U.S. and European officials, this research systematically addresses these issues with a view to both ground these new sanctions in the traditional debates over the efficacy of such economic statecraft and provide policymakers a better understanding of how the United States and other leading states can use these new levers of coercive statecraft. We find that these sanctions, under a more limited set of circumstances, can be more effective than either comprehensive or targeted sanctions. Yet even under these ideal circumstances this form of coercive pressure can become problematically disaggregated from diplomatic strategies.

Keywords: Sanctions, Coercion, Diplomacy, Reputation