Tariq Al-Homayed
Saudi journalist and writer, and former editor-in-chief of Asharq Al-Awsat newspaper

Sanctions: A Game or a Loophole? 

The debate about the efficacy of sanctions rages on. Were sanctions effective, for example, against Saddam Hussein’s regime in the past? Have the sanctions currently imposed on North Korea had the desired effect; what about Iran? Has the Caesar Act worked in Syria? Have the sanctions imposed on Russia following its invasion of Ukraine?

However, another question is more pertinent. Are sanctions a tool used to further political interests, distract the public, or improve parties’ performance in elections? One development that clearly suggests they are is the hostage deal between Washington and Tehran.

Immediately after it was announced, the US-Iranian deal, through which the US released $6 billion in frozen Iranian assets in exchange for Tehran freeing five US hostages of Iranian descent, sparked a heated debate in the United States, with many asking questions about the motives and timing.

The detractors’ first line of attack is that electoral motives drove the US administration to make this deal. Some believe that the deal is part of a broader agreement regarding Iran’s nuclear program, with suggestions that the US will return to the accord after the presidential elections.

The US administration justified the hostage deal with claims that this is a humanitarian matter and that the deal stipulates that the released funds are conditional, preventing Iran from spending it on arming militias or groups affiliated with it in the region. The money can only be used domestically, and can only be used to purchase legal goods.

Is that true? A senior financial expert explained the answer to me. “In economics, there is a concept called ‘fungibility,’ which refers to financial interchangeability. The released funds are indeed used to purchase non-sanctioned goods, but funds the Iranians had previously been allocated for those goods are channeled toward illegitimate activities.”

He added: “Setting terms on the allocation does not work. It’s like a shell game: Let’s assume that Iran had allocated $100 million to buy medicine. After receiving the $6 billion, it will buy this medicine with the money released by the US; then, it will spend the $100 million it had allocated for the purchase of medicine to finance and arm militias. In colloquial terms, it is a sleight of hand, as the released funds allow Iran to redirect money it already had.”

Moving on to discuss Russia and the sanctions imposed on it, the expert explained: “The same logic applies to the oil market. It doesn’t matter much who produced or consumed it. What matters is there is a supply of oil and demand for it.”

To elucidate his point, he added that “If an oil-producing country is boycotted, it can sell its surplus to countries that do not boycott it. The market balances overall supply and overall demand; this is what happened with the sanctions on Russian oil.”

This example is straightforward. When Russian oil is boycotted by certain countries, others that disregard the boycott buy oil from Moscow and then sell it to the countries that had claimed they would not buy oil from the Russians.

This is not a riddle. It is a fact. Thus, the question becomes: Is it conceivable that experts, politicians, and economists in the countries concerned, including the United States, are unaware of this? Of course, they are aware.

So, the question then becomes: Have sanctions become a game of achieving narrow political goals? I believe so.