When Economic Pain Fails to Buy Political Compliance
by Kent O. Bhupathi
AI;DR: Sanctions can impose severe economic, financial and technological costs, but those costs do not automatically translate into political compliance, particularly when governments view the disputed issue as central to national security, sovereignty or regime survival. Evidence from Iran and other major cases suggests that economic coercion is most effective when demands are limited, the target is highly dependent on the sanctioning coalition, substitutes are scarce, pressure is applied quickly and compliance is paired with a credible route to sanctions relief. Over time, targets adapt through alternative financial, trade and smuggling networks, reducing marginal coercive leverage even as structural damage continues to accumulate, often disproportionately affecting civilians rather than political elites. Iran illustrates both the power and limits of sanctions: pressure contributed to the 2015 nuclear agreement because it was combined with defined concessions and meaningful relief, while the post-2018 experience shows that greater economic severity alone does not necessarily produce greater strategic restraint. The central lesson is that sanctions are more reliable as instruments of leverage, containment and capability degradation than as mechanisms for forcing states to abandon interests they consider vital, making their success dependent on whether the political concession sought is realistically purchasable and whether the promised benefits of compliance are credible.
In 2012, sanctions hit Iran with enough force to leave a visible crater in the economy (namely via EUCR No. 267/2012, plus a number of US executive orders). Synthetic-control studies later estimated that the restrictions reduced real GDP by roughly 17 to 19% relative to where it might otherwise have been. Oil revenues fell, access to finance tightened, imports became harder to pay for, and ordinary households absorbed much of the shock. Yet, Iran did not simply abandon its nuclear program…
Rather, years of pressure helped produce a negotiated bargain under which Iran accepted nuclear restrictions in exchange for sanctions relief. Time was the key here, and it was highly instructive.
That distinction sits at the heart of the sanctions debate. Economic pressure is often quite effective at making a country poorer, disrupting trade, restricting technology, and raising the cost of pursuing state objectives. But political compliance is another matter.
Across Iran, North Korea, Iraq, Russia, South Africa, and other such cases, the evidence repeatedly shows that governments can absorb extraordinary losses when leaders consider the disputed issue central to security, sovereignty, or regime survival. Moreover, sanctions, across their varying capacities, perform best when the demand is:
Limited,
Dependence on the sanctioning coalition is high,
Substitutes are scarce,
Pressure arrives quickly, and
Compliance comes with a credible way out.
The practical lesson is less satisfying than the idea that enough pain will eventually produce surrender, but considerably more useful. Economic coercion works best as leverage and degradation, not as an automatic conversion machine for changing what states value most.
What Does “Working” Actually Means?
The sanctions debate gets into trouble almost immediately because the word “work” is asked to carry far too much weight.
A travel ban on a handful of generals is not the same policy as cutting a central bank off from dollar clearing. Neither resembles denying semiconductor-manufacturing equipment, restricting oil insurance, freezing sovereign assets, or imposing a comprehensive trade embargo. These tools impose costs in different places, on different people, and over different time horizons… They are all also meant to pursue different objectives.
That makes the first question less dramatic than “Do sanctions work?” but much more useful. The better question is what sanctions are actually meant to achieve.
Sanctions can be used to deter an action before it occurs, compel a government to reverse one already underway, deny access to finance, weapons, or technology, or contain a capability by making its expansion more expensive. They can also be imposed primarily to punish and stigmatize conduct, even when there is little expectation that policy will change.
And those outcomes should not be casually mixed together. Preventing a weapons shipment is not the same achievement as persuading a government to renounce the strategy that created demand for the weapons in the first place.
This is one reason published “success rates” are so unstable. Major sanctions datasets code threats, partial concessions, negotiations, regime change, and the contribution of sanctions differently. Reducing those judgments to a single percentage creates an illusion of precision and obscures the fact that the underlying question has changed.
The Threat and Imposition of Economic Sanctions dataset adds another complication. Some of the easiest successes happen at the threat stage. A government that expects sanctions to be costly may concede before restrictions are imposed. If researchers examine only countries that were actually sanctioned, they are studying a group that has already refused the opening threat. Unsurprisingly, that group contains a lot of difficult targets.
A 2025 meta-analysis covering 37 empirical studies found striking disagreement across the literature, but several patterns survived the noise. Sanctions tend to perform better when:
Countries have strong pre-existing trade ties,
Pressure is applied rapidly, and
Relations were relatively good before the dispute.
Economic damage is relatively straightforward to observe, but whether it produced strategic capitulation is a separate question.
When the Pain Hits a Wall
The basic economic logic of sanctions seems easy enough. Raise the cost of resistance until compliance becomes the cheaper option.
But in economics, there are no solutions, only trade-offs. And the political dimension here is that governments are not simply maximizing national income.
A leadership may regard control of disputed territory, preservation of the regime, or possession of a nuclear deterrent as worth far more than several percentage points of GDP or unemployment. Citizens may dislike inflation and shortages intensely while their government still believes surrender would create a greater danger.
Economic pain matters, but the political value attached to the disputed policy matters more.
This realisation helps explain why sanctions perform better against limited, divisible demands. A government can release a prisoner, change a tariff, accept an inspection regime, or modify a specific regulation without concluding that its survival is at stake. Asking it to dismantle what it sees as its ultimate security guarantee is a different bargaining problem.
The more interesting sanctions successes reflect this distinction:
Iran's 2015 nuclear agreement did not emerge from punishment alone. Sanctions helped create bargaining pressure, but the JCPOA offered substantial sanctions relief in exchange for defined and monitored nuclear restrictions.
Libya's 2003 WMD reversal was also accompanied by the prospect of diplomatic normalization and reintegration.
Pressure on South Korea and Taiwan over proliferation operated in the context of deep security and economic relationships with the United States.
Serbia's participation in the Bosnia settlement followed not only economic isolation but military developments and intensive diplomacy.
The recurring mechanism is pressure with an off-ramp, so to speak. And research on nuclear reversal reinforces the point a bit.
Rupal Mehta's work finds positive inducements central to many successful proliferation bargains, alongside factors such as leadership change and security conditions. Nicholas Miller's comparative research likewise shows that sanctions have sometimes contributed to nuclear restraint, particularly where the target was highly dependent on the United States, while repeated failures appear in cases such as Pakistan and North Korea.
But then there is the credibility problem. A government asked to surrender an irreversible strategic asset must believe that promised relief will endure. If sanctions can simply be restored after compliance, the bargain becomes less attractive.
Iran's experience after 2018 is difficult to ignore. The United States left the JCPOA and reimposed sanctions, without there being a stronger replacement agreement. Iran progressively stopped implementing JCPOA-related commitments from 2019 onward.
Of course, no single episode can prove that sanctions caused every subsequent nuclear decision; but, the more recent record does weaken the simpler assumption that greater economic pressure necessarily produces greater strategic restraint.
Why More Pressure Can Produce Less Leverage
Sanctions are often discussed as though the target economy simply stands there and gets sanctioned.
But, no, the targets never just take it…
Governments adapt by rationing foreign exchange, rerouting shipments through third countries, shifting transactions to smaller banks, and relying more heavily on shell companies, circuitous shipping routes, and smuggling networks. Over time, these workarounds harden into durable commercial channels, often with the cooperation of friendly governments that find geopolitical loyalty can carry attractive margins.
Phrased differently, adaptation tends to create a coercive window that may be strongest early… and that window is strongest before firms and officials have absorbed the fixed costs of building alternative channels, which is why the first round of sanctions can be especially disruptive.
Once those networks are established, keeping the same restrictions in place may continue to impose costs without generating much additional disruption. That helps explain why a 2026 event study of sanctions episodes from 1960 to 2022 found no evidence that sanctions become more economically effective, on average, simply by lasting longer.
Financial sanctions against Iran illustrate the process particularly well. Research by Newman and Zhang found that multinational-bank lending around the 2010 sanctions fell by roughly 14% to Iran's neighbors and 12% to politically aligned countries. Yet offshore-center banks increased lending to those jurisdictions by roughly one-third. The sanctions generated over-compliance among heavily regulated institutions while simultaneously shifting business toward less-regulated intermediaries.
So… sanctions may remain effective even as the form of that effectiveness changes over time.
The same distinction matters for technology controls. Commodity and consumer trade can often be rerouted, while restrictions on advanced equipment and specialized inputs may do little to first-year GDP but still erode maintenance, productivity, and future production capacity.
So political leverage can fade while structural economic damage continues to accumulate. And the damage is rarely distributed as neatly as the theory of coercion might wish.
Iranian household research by Arash Ghomi found that the effects of the 2012 sanctions were highly unequal. Young, rural, poorly educated, and minority households were more exposed to poverty, while government-sector and highly educated households were relatively protected. Other cross-country research finds sanctions associated with worsening income inequality. [see footnote]
That should complicate any comfortable assumption that civilian hardship moves cleanly upward into pressure on political leaders.
Authoritarian governments can shield security institutions and favored groups while shifting costs onto those with little political influence. Even formal exemptions for food and medicine may offer limited protection when banks, insurers, and shippers avoid otherwise legal transactions because of compliance risk.
Civilian hardship can fuel opposition, but it can just as easily produce emigration, repression, or anger directed at either the government or the foreign power imposing the sanctions. In practice, these responses often occur together. Remember, trade-offs…
What Can Economic Pressure Actually Purchase?
Iran is a particularly useful case because it is no longer a novice at being sanctioned. It has spent decades learning how to operate under restrictions on oil, finance, shipping, and technology. Any new pressure therefore lands on an economy that has already paid many of the costs of adaptation.
That does not make stronger enforcement is inherently meaningless. Tighter restrictions would likely reduce Iran’s income and raise transaction costs, consistent with earlier Iran-specific evidence showing that sanctions can impose large economic losses.
There is also good reason to expect civilian spillovers. Financial isolation raises import costs, constrains foreign exchange, and encourages private-sector over-compliance. Previous sanctions did not neatly concentrate their burden on senior political decision-makers.
What becomes much harder to predict is the next step in the chain.
There is moderate evidence that greater pressure can improve bargaining leverage when Iran is offered a credible package of sanctions relief in return for a defined concession. There is much less reason to believe that greater economic severity by itself will produce an abandonment of enrichment or wholesale reversal of regional-security policy.
This distinction should absolutely change how policymakers judge success.
If the objective is to deny access to advanced weapons, machine tools, semiconductors, or finance, sanctions may be valuable even when Iranian leaders never change their minds. The policy is then working through degradation and containment. Arms embargoes and technology controls have a clearer logic under that standard because they attack capability directly rather than hoping general economic suffering will eventually alter political preferences.
However, if the objective is compellence, the test is much tougher.
Before escalating pressure, governments need to definitively work-out:
What concession they are seeking?
Whether the target can realistically make it?
How quickly it can adapt?
Who will bear the resulting costs?
Just as important, the target must believe that any benefit offered for compliance will survive after it makes concessions. These are less satisfying conditions than, say, the rhetoric of “maximum pressure,” true… but they are much closer to how coercion actually works.
Taken together, the evidence suggests that sanctions can impose serious economic and technological costs and, under the right conditions, turn them into bargaining leverage. Whether that pressure produces political concessions still depends on how the target absorbs the costs and what it expects to gain from compliance.
But economic coercion is much better at changing incentives than at changing what states consider vital. The real test of such sanctions, then, is whether the damage they inflict can purchase a political outcome the target is willing to sell and the sanctioning state can credibly fund.
Footnote:
The same pattern appears in human capital. Research exploiting differences in Iranian industries' exposure to sanctions found that children in more exposed households completed about 0.1 fewer years of schooling, were 4.8 percentage points less likely to attend college and experienced a roughly 58% decline in household education spending.
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