How sanctions helped bring down the Soviet Bloc

Among sanctions critics who oppose America’s foreign policy goals or sympathize with its adversaries, a common cliche is that “sanctions never work.” A more nuanced criticism from skeptics of American power is that sanctions alone cannot cause states to change the policies that Washington and its allies oppose. A third argument is that sanctions are not an end unto themselves. The first argument is demonstrably untrue; the second is a half-truth; and the third is too self-evident to be worth saying at all. A close study of contemporary sources shows that sanctions—in combination with the structural inefficiencies, spiritual and material failings, and political vulnerabilities that all dictatorships share—played a decisive role in the collapse of the Soviet Bloc. 

The 1980s were the bronze age of sanctions. In those times, they were generally limited to trade and trade finance sanctions under the Export Administration Act. The freezing of assets in correspondent accounts would not become a common tool for two more decades. Yet even today, the sanctions debates of the 1980s and the lessons of 1989 echo in today’s debates about dependence on Russian energy, the limits and purposes of NATO, and the war in Ukraine. They also echo in the flawed assumptions that assured the failure of the post-2018 Trump and Biden administrations’ North Korea policies—both of them marked by their near-complete failures to enforce sanctions, target a limited number of key vulnerabilities, build effective international coalitions, deter violations, or engage discontented North Koreans.

Poland: Austerity, Solidarity, & Martial Law

By 1981, the Polish government was deeply in debt to Western banks following a borrowing spree it began in the 1970s, to prop up its consumer economy and economic development. Other Warsaw Pact states were also indebted to Western banks to varying degrees—and increasingly, answerable to their lenders, who gained influence over their debtors’ domestic policies as the price of maintaining their access to credit. By the late 70s, the Polish government could barely refinance its debts. Its lenders demanded austerity measures, which caused food prices to rise, wages to stagnate, and standards of living to fall. Opposition groups like Solidarity coalesced and organized large strikes and protests. One might even argue that easy credit from Western bankers lit the fuse that blew down the Wall, but at the time, those bankers shuffled uneasily in their loafers, on the wrong side of history:

There are signs that Western bankers became uneasy with Solidarity because the unrest, strikes and economic disruption that accompanied its rise inhibited the Polish government from recovering its economic health.

Last Sept. 11, Chemical Bank’s Paul McCarthy, speaking on the MacNeil-Lehrer television show, publicly acknowledged some misgivings about the political course taken by Solidarity. “Solidarity has to become understanding of how serious the financial problems are,” McCarthy said. “It has to be willing to work with the communist government to retain centralized control over the economy until such time as a stabilization program begins to take effect.”

In December 1981, Poland’s Soviet-backed government answered the rising tide of opposition by declaring martial law. President Reagan imposed a package of sanctions. He suspended exports of food to Poland until its government provided credible assurances that it would go “to the Polish people–not to their oppressors”—never a condition that the U.S. could extract from the North Korean government on the few occasions when it tried. Reagan also denied landing rights to Poland’s national airline, denied Polish ships fishing rights in U.S. waters, and limited technology exports to Poland. The most significant sanction, however, cut off Export-Import Bank credit insurance for U.S. trade with Poland. In 1982, after Warsaw disbanded Solidarity, Reagan also revoked Poland’s Most Favored Nation trade status. Polish exports to the United States plunged from $450 million to $250 million in just five years. This was no small thing. In 1982, the U.S. was the market for 35 percent of Poland’s exports. London compounded Warsaw’s troubles by imposing its own trade credit sanctions. Polish imports from the U.K. soon fell by half, and exports to the U.K. fell by a quarter.

Warsaw’s reaction to the sanctions was similar to what we’d expect from Pyongyang today—a belligerence that betrayed the disingenuousness behind its arguments that sanctions never work. Just as Pyongyang and its apologists still claim, Warsaw claimed that sanctions would hurt the people, but would not force the government to change its policies.

While asserting that the restrictions on trade and credits have cost Poland billions of dollars in lost production and severely damaged its industrial and agricultural sector, Jaruzelski also insisted defiantly, “No foreign dictate has ever or will ever influence our internal affairs.”

“The western attitude on sanctions is senseless,” Foreign Minister Stefan Olszowski, one of the leading members of the ruling Politburo, said in an interview. “What effect they have had on our people is clear. What lack of effect they have had on the government is clear. All that is not clear is the benefit to the West.”

At least one Washington Post reporter had editorialized in 1981 that the “measures [would] have only minor impact on Poland’s already desperately strained economy.” But by 1983, another Washington Post reporter had to admit that “the restrictions placed on Poland have had a greatly damaging effect on the country’s economic life.” Sanctions on the restructuring of Poland’s debts and opposition to its membership in the IMF had manifest impacts on both the consumer and state economies. Poland’s gross national product and industrial production fell. Showpiece projects slowed to a crawl. As trade withered, goods disappeared from shops. Some Poles blamed the West, but most understood that their own government’s decisions were the root cause of their misfortune. Some members of the opposition were brave enough to support the sanctions. 

“These authorities will make concessions only under pressure,” said one activist. “The idea that you can reason with them is false. If the West were now to reestablish normal contacts that would give us the feeling that we are being left alone.”

In 1981, Reagan said that his sanctions against Poland would stay in place until Warsaw released “those in arbitrary detention,” lifted martial law, and relaxed curbs on freedom of speech and association. Warsaw did not accept all of Reagan’s demands, but in early 1987, it had run out of options, and Gorbachev was no longer in a position to guarantee its debts, political or financial. It agreed to lift martial law, free thousands of political prisoners, and refrain from mass arrests. That was enough to satisfy both Solidarity and Reagan, who lifted the sanctions on landing rights, trade, and credit. A reenergized opposition returned to the streets. Two years later, it won the Warsaw Pact’s first free elections. The soft landing of Polish Communism, combined with the economic and political deterioration of other Soviet satellites, probably eroded elite cohesion across the Soviet Bloc. Within six months, every other domino in the Warsaw Pact would fall. 

The U.S.S.R.: Gas, Grain, & Glasnost

After the 1979 invasion of Afghanistan, President Carter imposed grain export sanctions and a symbolic boycott of the 1980 Olympics. In November 1982, Reagan also sanctioned the U.S.S.R. for supporting the crackdown in Poland. He denied landing rights to Aeroflot, restricted technology transfers, paused negotiations on resuming U.S. grain exports, and sanctioned Soviet shipping. He also suspended export licenses for the Soviet oil and gas industry. By then, the U.S.S.R. was financially dependent on oil exports for hard currency, and it was building its first gas pipeline to Western Europe. The export sanctions also applied to U.S. subsidiaries overseas, including in European nations that had inked lucrative contracts with the Soviet energy industry. Reagan pushed his European allies to cut off exports and credit to the Soviet pipeline project, fearing that it would subsidize a military buildup and foster European dependence on the Soviets. European governments balked. They had encouraged their banks to offer easy credit to the Soviet Bloc. But within the Reagan administration, some prominent voices wanted to deny the U.S.S.R. credit to force its leaders to choose between their military buildup and raising the living standards of restive peoples.

The new sanctions would have been costly to U.S. corporations like Caterpillar, which enlisted the Republican House Minority Leader to oppose and nearly overturn them. But the most furious reactions came from Paris and Bonn. French and West German corporations had invested heavily in the Soviet energy industry and stood to lose millions. Taken aback by the fierce backlash from Europe, Reagan sent Secretary of State George Schultz to negotiate a multilateral agreement with Britain, Canada, France, Italy, Japan and West Germany to limit credit, technology transfers, energy imports, and trade that might benefit the Soviet military. In exchange for the European commitments to join a multilateral sanctions regime, Reagan lifted the unilateral U.S. sanctions and allowed the existing European deals—and the gas pipeline—to go forward.

Despite these trade-offs and the mischief they would sow 40 years later, the multilateral sanctions were probably more effective than anything the U.S. could have done alone. They contributed to the U.S.S.R.’s difficulties in obtaining new technologies and restructuring its debt. (Here, we must also give appropriate credit to the sanctions-alone argument; in 1982, a portion of the Trans-Siberian Gas Pipeline exploded. A former Air Force Secretary later revealed that the C.I.A. learned—probably from a disillusioned K.G.B. spy—that the Soviets were stealing western technology to build the pipeline and planted malicious software where they knew the Soviets would find it.)

Reagan wasn’t able to stop the Soviet gas pipeline permanently or prevent Russia from using it to gain leverage over Europe. But he did delay it just long enough to boost domestic U.S. oil production and persuade the Saudis to pump more oil. The consequent fall in oil prices devastated the U.S.S.R.’s balance of payments. Since the 1970s, Soviet oil exports had propped up the Kremlin’s impeccable credit. Banks even saw the energy-rich U.S.S.R. as a guarantor of its satellites’ debts. By the 1980s, the Soviet Union was deeply in debt and viewed as a bad credit risk. Its gas revenues were too little and too late to reverse its economic decline and political dissolution.

The Lessons of the Cold War

As this blog has argued, a sanctions campaign must focus its limited resources on an adversary’s key vulnerabilities rather than a diffuse array of targets to be effective. It must be part of a whole-of-government effort to weaken the adversary’s resistance to policy change—or failing that, to weaken the adversary’s political cohesion and integrity. It cannot be an end to itself, any more than a splashy summit can be. A sanctions campaign is not a policy by itself, but must work in concert with other instruments to play a single theme. It is unlikely to be effective without the support of allies and the deterrence of adversaries who would frustrate it, and gaining that support requires diplomats who can articulate clear strategies and goals for a coalition. It requires good intelligence to target resources, recruit informants, and occasionally, plant some malware in the right hands. It requires investigators and prosecutors to seize, confiscate, share, and repurpose stolen assets. It may also require the backing of military deterrence to reassure uncertain allies. Because North Korea’s political and economic conditions are nothing like those of 1980s Europe, the two campaigns would have very different strategies and goals.

In 1990, I was a witness to how global sanctions against Apartheid weakened the vulnerable political structure beneath its white oligarchy. By then, years of cultural boycotts and divestment had broken its cohesion. Inflation was high, and fuel prices were outrageous. Every English South African and many Afrikaners seemed to be mulling some plan to emigrate. In the same decade, another global coalition had weakened the economic structures holding up another oppressive system—the one-party states of the Soviet Bloc. They did not work alone, but in tandem with information operations, intelligence, support for domestic opposition, diplomacy, and the deterrence of NATO. They exacerbated economic grievances against the state, and information polarized those grievances into an organized opposition and weakened the state’s capacity to resist. We accomplished all of this in a way that reassured elite and non-elite citizens alike that life in an open society offered the best chance for a safe and prosperous future. Sanctions could not have done this had these regimes enjoyed broad popular support or elite cohesion. They might not have worked against governments that were popular, efficient, and economically self-sufficient. But then, what dictatorship ever is?