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Elusive effects of export embargoes for fossil energy resources

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  • Konrad, Kai A.
  • Thum, Marcel

Abstract

Unlike produced commodities, the extraction and sale of fossil energy resources such as oil or natural gas is an “asset swap”: assets stored in the ground are converted into financial assets. The value of assets in the ground is reduced by the amount taken out and sold. This is important for assessing the coercive power of the threat of implementing an export embargo. Even if the country affected by the embargo is ruled by an autocratic kleptocrat, who appropriates all the revenues from resource sales, the sanctioning effect is close to zero in a functioning financial market environment. However, if the autocrat considers her future government power to be at risk and, at the same time, can bunker the extraction proceeds in a financial safe-haven, then the embargo leads to expected wealth losses for the autocrat. The expected wealth losses increase in the difference between the likelihood of retaining power and the wealth security of the financial assets in a safe haven. We also analyze variants of the model such as an oligopolistic resource market, where the non-sanctioned resource exporters benefit at the expense of the sanctioned country.

Suggested Citation

  • Konrad, Kai A. & Thum, Marcel, 2023. "Elusive effects of export embargoes for fossil energy resources," Energy Economics, Elsevier, vol. 117(C).
  • Handle: RePEc:eee:eneeco:v:117:y:2023:i:c:s0140988322005709
    DOI: 10.1016/j.eneco.2022.106441
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    More about this item

    Keywords

    Sanction; Fossil energy resources; Export embargo; Insecure property rights; International financial safe-havens;
    All these keywords.

    JEL classification:

    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

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