Assessing the effectiveness of economic sanctions

Abstract

The strength of sanctions can significantly impact the outcome of a dispute. The effectiveness of economic sanctions will be explored within the context of the conflict between Organization of Petroleum Exporting Countries (OPEC) and US shale oil producers in 2014. The outcome was not what OPEC anticipated, perhaps because OPEC misperceived the opponent’s preferences. Sensitivity to sanctions is a major component of a decision maker’s preferences when a dispute, or a negotiation, is modeled within the Graph Model for Conflict Resolution (GMCR). This study uses Inverse GMCR to determine what preference rankings would be required for the conflict to end as OPEC wished. The difference between the original preference ranking and the required rankings reflects the miscalculation of the strength of the economic “squeeze” that OPEC imposed when it flooded the market with oil to reduce the price. OPEC expected this sanction to be strong enough to damage, and perhaps destroy, the shale industry, but shale producers were able to withstand it. The graph model analysis suggests why this conflict ended as it did, and provides guidelines for understanding whether sanctions can be effective in forcing a particular outcome on a dispute.