The history of trade embargoes

The recent UN resolution to implement trade and financial sections against Libya has stoked memories of previous embargoes – none of them wholly successful. One thing is certain: Gaddafi isn’t suffering personally with the latest trade slap down. But what of other states?


Gaddafi’s Libya
Before we went to press, the US imposed trade sanctions on Gaddafi’s regime. Whether it will have any effect is another thing. Trade embargoes don’t have an effective track record to point to, and in some cases simply stoke feelings of victimisation, personal aggrandisement and the cult of The Leader. In other words, they can even rally popular support (think Robert Mugabe et al – see below). What sanctions will do effectively with the current Gaddafi situation is close off the conduits for money to flow in and out. Applying clamps to the international financing system should cut off the regime’s access to buy raw materials and food. With Libya, we’ve been here before, of course. And there is an argument that US sanctions against Libya did help give Gaddafi the push to renounce his country’s programmes to develop weapons of mass destruction (those sanctions were lifted in 2004). So, déjà vu.

But there are increasing reports that Libya’s oil industry is now on the verge of paralysis due to the recent embargo. Western governments have, on the whole, moved quickly to freeze Gaddafi’s assets. For example, a three percent holding in Pearson, owners of the Financial Times, worth more than £250m, has been frozen.

Overall it’s estimated the Gaddafi family’s own assets could be worth up to $100bn (though for obvious reasons, reliable figures are hard to come by). Interestingly, the new trade sanctions against Libya should be a litmus test for Western banks chastened after the credit crisis. Awareness of foreign banks operating with US and UK banks has been considerably heightened and new money laundering and know-your-client laws have been implemented. Freeze first, ask questions later – a very new approach for the international financial community. Will it work? We’ll soon know.

Mugabe’s Zimbabwe
Recently the EU extended sanctions on individuals and businesses linked to human rights abuses in Zimbabwe. However, it was a mixed bag, because the EU also lifted asset freezes against more than 30 people closely linked to Mugabe’s regime. That’s partly because there has been some political reform (though not enough by some margin). Since the government of national unity came together in early 2009, Zimbabwe has absorbed more than €360m in EU aid for a whole host of social programmes including food security, despite the reluctance of some countries to relax sanctions individually. Meanwhile Mugabe has threatened to seize privately-owned companies unless “western sanctions” are fully lifted. “Why should we continue having companies and organisations that are supported by Britain and America without hitting back? Time has come for us to [take] revenge,” he has said. Mugabe has a long and successful history of playing the victim, skillfully turning up the rhetoric despite many of his people living in an economic – though slowly improving since 2010 – shambles. Recently Mugabe has switched the focus of his anger to large UK-based multinationals like Standard Chartered, which continues to operate there, despite exhortations from the international community not to operate in countries that prop up thugs. He has also ratcheted up the anger on Zimbabwean citizens who call for sanctions against the country themselves. They should face treason charges – which carries a death sentence – he recently said. Sanctions have hardly been effective in ridding this loathsome dictator from Zimbabwe. But then, if sanctions didn’t have some bite, why would Mugabe be so hugely angry about them?

Castro’s Cuba
It’s a regular occurrence. Every year the US reviews its trade embargo with Cuba. Could it finally be lifted this year? The truth is that, with so much else happening in the world, particularly the new Middle East recalibrations, the US Congress can’t work up the necessary enthusiasm or energy to do away with the embargo (though that hasn’t stopped Obama cutting some decent sized holes in current arrangements). But let’s roll back to the start, to 1960 when Cuba nationalised the properties of US citizens and corporations. President Dwight Eisenhower responded, enacting a commercial and financial embargo on the island in October 1960. “There is a limit to what the United States… can endure. That limit has now been reached,” he said. To this day this is probably the most enduring trade embargo in modern history. Fidel Castro has, like Mugabe, been highly skilful in using the embargo to claim it has scapegoated the country and its citizens. The UN General Assembly has slated the embargo as a violation of international law. There has also been concern that possible malnutrition and disease resulting from higher food and medicine prices have hit men and older people disproportionately harder (Cuba’s rationing system also gives preferential treatment to women and children). Internationally, commodities companies like Respol, Spain’s largest energy company, increasingly face the choice of doing business with Cuba – or the US. Oil prospecting off Cuba’s coast is potentially big business. But can they risk it, however attractive the Cuban oil licences look?

Saddam Hussein’s Iraq
At the end of 2010 the UN Security Council voted to lift the vast majority of sanctions imposed on Iraq during the era of Saddam Hussein. It was quite a journey from 1991 – when Hussein first dispatched his forces across the Iraq-Kuwait border – to December 2010 when sanctions were, more or less, lifted. “Iraq is on the cusp of something remarkable – a stable, self-reliant nation,” said US vice president Joe Biden at the time. However, the combination of air attacks on the country and sanctions had a devastating impact on much of the population, with an estimated death toll of infants under the age of five between 700,000 and 880,000. Iraq is a case in point of how many who belonged to its brutal regime could – if they had influence or money – buy their way around many of the measures. “Smart” or “targeted” sanctions were developed against Iraq’s rulers: personal computers, tractors, x-ray equipment for airports and hospitals, irrigation, sewage and water filtration systems, medicine plus cars for personal use; all such items were waved through as opposed to military or “dual-use” goods. Sanctions busting is taken seriously in the UK. In February 2011, two ex-directors of one of the UK’s largest privately-owned companies, bridge building operator Mabey & Johnson Ltd, were both jailed and fined for sanctions offences relating to contracts involving the construction of prefabricated bridges in Iraq. It was discovered that Mabey & Johnson had agreed to pay kickbacks to the Iraqi government to help them win a €4.2m contract for 13 bridges through the Oil-for-Food Programme.

Thomas Jefferson’s trade problem
Trade sanctions were deployed as far back as the 18th century when US President Jefferson established an embargo – at the time called ‘discriminatory duties’ – on all US trade with Europe to protest against attacks on US merchant ships. Like so many sanctions, it proved ineffectual – and dramatically curbed US trade in commercial centres like New York and Philadelphia. Both suffered profoundly as a consequence. In fact, the reduction of America’s cotton exports was actually welcomed by many UK merchants, many of whom had warehouses packed-to-bursting with US cotton; previous oversupply fears were promptly wiped out. By early 1809 the US Embargo Act was lifted and trade with all ports was resumed – except with Britain and France.