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Dr. Daniel Ahn discusses the economic impact of targeted sanctions

The Economics of Targeted Sanctions

On February 15th, 2019, The Institute of World Politics hosted a talk with Dr. Daniel P. Ahn, advisor to the U.S. government, senior advisor at the Rapidan Energy group, and Lecturer at John Hopkins School of Advanced International Studies. Dr. Ahn presented his findings in a lecture titled “The Economics of Targeted Sanctions” and introduced the emerging details on this topic with regard to Russian relations. Dr. Ahn focused on how big data and machine learning techniques have been used on a uniquely intimate level to understand the economic impact Russian targeted sanctions have had.

Dr. Ahn began with a short history of sanctions dating back to 430 BC in ancient Greece and explained that traditionally comprehensive sanctions have been utilized in foreign disputes. The so-called “new wave” method of targeted sanctions focused on specific organizations, transactions, and individuals to address their political disputes.

Dr. Ahn continued by presenting the question of how the United States interprets the economics of the sanctions’ effects. Dr. Ahn covered an outline of why the sanctions were created, what the impact has been, who has been affected, and how we know that it has worked.

When E.U. and U.S. forces implemented sanctions against Russian targets, it was in response to the annexation of Crimea and Ukraine by the Russian Federation. In the presentation, Dr. Ahn argued that in 2014 when the sanctions were enforced, the results on the surface appeared to be almost counterproductive. The sanctioned organizations thrived, while other aspects of the foreign government suffered. To detangle the difference, Dr. Ahn examined and presented economic data from firms sanctioned and those indirectly affected. The data tracked 80 million firms and their information, including revenue, number of employees, active status, etc. These are all factors that can be utilized to measure economic prosperity. When this strategic analysis occurred, a different narrative came to light.

Although targeted sanctions are created as a means to protect the public, according to Dr. Ahn, the end result is not often a reflection of their best intentions. In an effort to protect affected organizations, the Russian government has been burdened with the decision of allocating civilian monetary resources to the sanctioned organizations. This would be done to maintain their reputation and cast a façade of continued business prosperity. An example presented by Dr. Ahn was Bank Rossiya’s financial performance. Shortly after Bank Rossiya was sanctioned by the U.S., they were elected responsible for managing Russia’s wholesale electricity market. It is a standard protocol that the bank responsible for that task is to be allocated 6,510,310.00 RUB (approximately 100,000 USD).  In turn, the organizations’ numbers skyrocketed. He noted that to truly understand the reality of the situation, performance contrast is what needs to be monitored rather than financial.

Dr. Ahn said that the damages caused by these sanctions resulted in permanent issues to firms that have been reflected in the disincentivized affected businesses. This is especially pertinent to organizations affected by spillover damage. Dr. Ahn concluded that “The collateral damages to non-targeted firms seem to suggest that, as smart as they are, targeted sanctions could be smarter.”