Subsystems, Bargaining Costs, and Economic Coercion: The Incidental Consequences of US-Led Sanctions Against Russian Oil Exports

Abstract

How do markets affect the distribution of coercive bargaining costs in economic sanctions? This paper uses subsystem theory to study sanctions as market governance arrangements. It argues that sanctions do not rely on coercion alone, but must also provide benefits to market participants. A sanctions sender is unlikely to enforce sanctions that could disrupt markets on which both sender and friendly third-party states depend. The paper further argues that sanctions can create unforeseen problems in other areas of the world economy, but that states tolerate such negative effects to preserve important market benefits. These arguments are illustrated through an in-depth case study of the 2022 price cap on Russia’s oil exports. The United States and its allies did not enforce the price cap strictly, worrying that doing so could disrupt Russian oil supplies and drive up crude prices. They also tolerated significant maritime safety and environmental risks arising from Russia’s price cap evasion efforts—especially its use of substandard “shadow fleet” tankers—to protect global oil markets. Scholars of economic coercion need to pay closer attention to how market arrangements shape the design and implementation of sanctions—and to their incidental consequences in other areas of governance.