Elusive effects of export embargoes for fossil energy resources

Kai Konrad and Marcel Thum

Energy Economics, 2023, vol. 117, issue C

Abstract: Unlike produced commodities, the extraction and sale of fossil energy resources such as oil or natural gas is an “asset swap”: assets stored in the ground are converted into financial assets. The value of assets in the ground is reduced by the amount taken out and sold. This is important for assessing the coercive power of the threat of implementing an export embargo. Even if the country affected by the embargo is ruled by an autocratic kleptocrat, who appropriates all the revenues from resource sales, the sanctioning effect is close to zero in a functioning financial market environment. However, if the autocrat considers her future government power to be at risk and, at the same time, can bunker the extraction proceeds in a financial safe-haven, then the embargo leads to expected wealth losses for the autocrat. The expected wealth losses increase in the difference between the likelihood of retaining power and the wealth security of the financial assets in a safe haven. We also analyze variants of the model such as an oligopolistic resource market, where the non-sanctioned resource exporters benefit at the expense of the sanctioned country.

Keywords: Sanction; Fossil energy resources; Export embargo; Insecure property rights; International financial safe-havens (search for similar items in EconPapers)
JEL-codes: D74 H12 H56 K33 Q34 Q35 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:117:y:2023:i:c:s0140988322005709

DOI: 10.1016/j.eneco.2022.106441

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