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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. A prominent example is former US President Trump’s decision to leave the Joint Comprehensive Plan of Action (JCPOA), a multilateral agreement with Iran. The decision led to a shutdown of EU trade with Iran. In this paper, 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, and their reputational 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.

Suggested Citation

  • Eckhard Janeba, 2022. "Extraterritorial Trade Sanctions: Theory and Application to the US-Iran-EU Conflict," CESifo Working Paper Series 9573, CESifo.
    • Handle: RePEc:ces:ceswps:_9573
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    References listed on IDEAS

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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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    Cited by:

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    3. 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

    Keywords

    international trade; sanctions; extraterritorial sanctions; US-Iran conflict;
    All these keywords.

    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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