Sanctions as Demonstrations: Third-State Learning and Strategic De-Risking

Economic sanctions are not only coercive interactions between senders and targets.Sanctions are also public demonstrations of how economic dependence can be convertedinto political leverage, and their use is observed by states outside the coercive dyad. Weargue that sanctions function as demonstrations of coercive risk. They reveal the sender’swillingness to weaponize economic ties and the vulnerabilities coercion can exploit,giving similarly exposed third states incentives to reduce their own susceptibility beforefacing direct threats. We examine three observable forms of such strategic adaptation:currency de-risking through greater physical official gold holdings, export geography deriskingthrough a less concentrated destination portfolio, and export product de-riskingthrough a broader product basket. Shared vulnerability predicts greater subsequent goldaccumulation, greater geographic dispersion of exports, and broader export productportfolios. The evidence is strongest for gold, more modest for export geography,and substantively small and primarily short-run for product breadth. The findingssuggest that sanctions can generate strategic externalities beyond the target by inducingvulnerable third states to alter the economic relationships through which future coercioncould operate, with implications for the future leverage available to sanctions senders.