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Extraterritorial trade sanctions: Theory and application to the US–Iran–EU conflict

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  • Eckhard Janeba

Abstract

Under extraterritorial sanctions the sanctioning country extends its policies to trade of third countries with the sanctioned country. An example is President Trump's decision in 2018 to leave the Joint Comprehensive Plan of Action (JCPOA), a multilateral agreement with Iran. In this article, I develop a game‐theoretic model to explain the emergence of extraterritorial sanctions. Such trade sanctions (i) do not arise when the harmful activity of the sanctioned country (“build a nuclear bomb”) is verifiable even if monetary transfers are ruled out, but (ii) emerge if a second activity (“sponsor international terrorism”) is not verifiable, and the sanctioning countries differ in their gains from trade with the sanctioned country, their harm from the non‐verifiable activity, and their cost from abandoning the international economic order. In the context of the US–Iran–EU conflict, I argue that the oil and gas fracking boom in the US together with former President Trump's ignorance of his international reputation are key factors in the emergence of extraterritorial trade sanctions.

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  • Eckhard Janeba, 2024. "Extraterritorial trade sanctions: Theory and application to the US–Iran–EU conflict," Review of International Economics, Wiley Blackwell, vol. 32(1), pages 49-71, February.
    • Handle: RePEc:bla:reviec:v:32:y:2024:i:1:p:49-71
    DOI: 10.1111/roie.12682
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    1. Gabriel J. Felbermayr & Constantinos Syropoulos & Erdal Yalcin & Yoto V. Yotov, 2019. "On the Effects of Sanctions on Trade and Welfare: New Evidence Based on Structural Gravity and a New Database," CESifo Working Paper Series 7728, CESifo.
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    3. Afesorgbor, Sylvanus Kwaku, 2019. "The impact of economic sanctions on international trade: How do threatened sanctions compare with imposed sanctions?," European Journal of Political Economy, Elsevier, vol. 56(C), pages 11-26.
    4. Kaemfer, William H & Lowenberg, Anton D, 1988. "The Theory of International Economic Sanctions: A Public Choice Approach," American Economic Review, American Economic Association, vol. 78(4), pages 786-793, September.
    5. Gary Clyde Hufbauer & Jeffrey J. Schott & Kimberly Ann Elliott, 2007. "Economic Sanctions Reconsidered, 3rd edition (hardcover)," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4075, January.
    6. James Feyrer & Erin T. Mansur & Bruce Sacerdote, 2017. "Geographic Dispersion of Economic Shocks: Evidence from the Fracking Revolution," American Economic Review, American Economic Association, vol. 107(4), pages 1313-1334, April.
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    Cited by:

    1. Konrad, Kai A. & Thum, Marcel, 2023. "Elusive effects of export embargoes for fossil energy resources," Energy Economics, Elsevier, vol. 117(C).

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    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

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