The impact of international sanctions on energy security

Abstract

This study first investigates different types of sanctions on energy security by employing data from a panel of target countries covering the period 1996–2014 and using the panel fixed effect model. Our evidence indicates that international sanctions do significantly negatively influence the energy security of target countries in some cases. Specifically, unilateral sanctions, U.S. sanctions, economic sanctions, and the intensity of sanctions have a significantly negative impact on energy security. However, plurilateral sanctions, EU sanctions, UN sanctions, and non-economic sanctions have no significant impact on the energy security of target countries. The results of endogeneity concerns are also consistent with the results of the basic regression analysis. Overall, our empirical findings merit particular attention from policy makers of target countries to ensure their energy security when facing international sanctions.

Keywords

International sanctions energy security panel fixed effect model LSDVC target countries

Introduction

International sanctions are increasingly becoming an important foreign policy instrument for many countries and are also essential methods for solving international conflicts.^1,2,a Moreover, international sanctions play an vital role in responding to the crisis of foreign policy.³ However, international sanctions also have a negative impact on different fields of the target countries, such as economic,⁴ politics,⁵ and social welfare.^6–8 Among them, energy, as one of the most important input factors for economic growth, plays a significant role in facilitating a country’s economic development.⁹ Therefore, international sanctions also inevitably affect the energy sector of the target countries. For example, the EU began imposing sanctions on Iran in 2012. As a result of EU sanctions, Iran’s daily oil production in 2012 decreased by an average of 11% compared with 2011, resulting in an estimated loss of daily oil production value of $72 million.¹⁰ Furthermore, Benzell and Lagarda¹¹ had indicated that the United States, the European Union, and several other countries imposed a series of sanctions on Russia that caused the value of its oil output to decline, further severely impacting its energy industry. Therefore, it is necessary to analyze empirically the impact of international sanctions on the energy security of the target countries and draw general and regular conclusions.

Energy is a crucial foundation for economic growth, national security, and sustainable development, making it the top priority in the 21^st century.^12,13 The core of the energy issue is energy security after the outbreak of the two oil crises in the 1970s, which has become the focus of attention of all countries in the world.^14,15 In other words, energy security is not only an economic issue, but also a political, military, and strategic issue. While international sanctions have an impact on the political, economic, and diplomatic fields of the target country, they may also affect its energy security.¹⁶ However, there are few empirical research studies exploring the impact of international sanctions on the energy security of target countries.¹⁷ We look to fill this gap in the literature through our investigation.

There are various reasons why international sanctions present a powerful influence on energy security of target countries. First of all, due to the importance of energy, the impact of international sanctions may directly limit the energy export or import of target countries.¹⁸ Under the general trend of economic globalization, restricting the import and export of energy by target countries will inevitably have a negative impact on energy security. Furthermore, the international sanctions worry the target countries so that they increase their energy imports in advance or accelerate import substitution.¹⁹ Moreover, target countries will try to increase energy reserves to cope with the negative impact of international sanctions on their energy security.²⁰ For example, the international community start imposing extensive sanctions on South Africa in 1985, including oil embargo, foreign capital withdrawal, etc. The international community’s oil embargo has seriously affected the development of the energy sector in South Africa, where oil reserves are scarce. In order to ensure energy security, South Africa consumes a lot of manpower, material resources and financial resources to increase oil reserves. In addition, international sanctions may also have a negative impact on energy security by reducing energy efficiency. More specifically, international sanctions reduce the energy efficiency of target countries through three channels: reduction of GDP growth, restriction of technological development and expansion of capital outflows.¹⁷ Reducing energy efficiency can significantly increase energy costs and dependence on energy imports, which is not conducive to energy security.

Our study contributes to the previous literature in several aspects. First, we provide a new perspective for empirical research in energy and political economics for maintaining the energy security of those target countries subject to international sanctions. To our limited knowledge, this is the only empirical research to investigate the impact of international sanctions on such energy security. Second, we investigate and compare the effect of various types of international sanctions and their intensity on energy security by employing panel data of target countries covering the period 1996–2014. Third, the results of endogeneity concerns are also consistent with the results of the basic regression analysis.

Our results show that international sanctions do significantly influence the energy security of target countries negatively in some cases. Specifically, unilateral sanctions, the imposition of U.S. sanctions, economic sanctions, and the intensity of sanctions have a significantly negative impact on energy security by increasing the net energy imports divided by energy use. The estimation results also indicate that the above three types of sanctions and the intensity of sanctions contribute to an increase in oil reserves of target countries. However, plurilateral, the imposition of EU sanctions, the imposition of UN sanctions and non-economic sanctions have no impact on energy security. Moreover, the estimated results of the endogeneity test indicate that international sanctions do significantly influence the energy security of target countries negatively. We are convinced that the findings will help to propose relevant countermeasures and suggestions from the perspective of avoiding sanction risks and safeguarding national energy security.

The rest of this paper is structured as follows. The next section presents the literature review, then the methodology and data are discussed. Next, the empirical results are presented, and finally conclusions are given.

Literature review

The implementation of international sanctions has different impacts on the target countries. Specifically, their impacts are mainly divided into the following aspects: economy, domestic politics, and social welfare. Our detailed introductions are as follows.

In the beginning, the impacts of international sanctions on the target country’s economy mainly cover trade and finance. For the impact on trade, Caruso²¹ used the trade gravity model to estimate bilateral trade between the United States and 49 target countries between 1960 and 2000. The results showed that extensive and comprehensive sanctions have a significantly negative impact on the target country’s trade. Yang et al.²² reached the same conclusion by using a multilevel model with panel data over the period 1980–2013. Employing the gravity model for 1153 cases from 1960 to 2009, Afesorgbor²³ empirically investigated and compared the impact of threatened international sanctions and the actual implementation of international sanctions on target countries’ trade. The results indicated that the imposition of sanctions leads to a reduction in trade flows between the mobilized and target countries, while the threat of sanctions increases trade flows between the sender and its target. In terms of financial aspects, Alroubaie and Elali²⁴ pointed out that the sanctions imposed by the United Nations (UN) against Iraq caused the depreciation of Iraq’s unofficial exchange rate and ultimately affected its’s economy. Peksen and Son⁴ noted that international sanctions have a negative impact on the financial stability of the target country and increase the probability of a financial crisis in it. In addition, Tao and Xu²⁵ stated that the international sanctions imposed by the United States on Russia have greatly affected the confidence of investors through a continuous withdrawal of foreign capital, finally leading to a high fiscal deficit, a sharp decline in foreign exchange reserves, and further pressure to maintain the exchange rate in Russia. Using data for over 125 countries during the period 1970–2005, Emre and Peksen²⁶ investigated the relationship between economic sanctions and banking crises in target economics. The results show that financial sanctions are more detrimental to the stability of banking systems than trade sanctions. Furthermore, Wang et al.²⁷ analyzed the impact of economic sanctions on official exchange rate volatility by using panel data of 23 target countries from 1996 to 2015. They found that most instruments of economic sanctions do increase exchange rate volatility.

The impact of international sanctions on the politics of the target countries has two sides. Allen^28,29 pointed out that the domestic political system of the target country is affected by the possibility of anti-government behaviors after sanctions. For the case when the target country is ruled by dictatorship, political violence is unlikely to happen when sanctions are imposed. Using cross-country time series data from 1972 to 2000, Peksen and Drury⁵ conducted a comprehensive analysis of the impact of international sanctions on political repression. Their results showed that international sanctions not only do not force the sanctioned regime to reform itself, but instead creates a motive for political pressure on the leaders of the regime. Based on panel data of 102 countries from 1972 to 2000, Peksen and Drury³⁰ documented evidence that international sanctions reduce the democracy and freedom of the target countries and the impact of comprehensive international sanctions on the democracy of the target country becomes more serious. Employing a heteroskedastic probit model for 109 sanction episodes over the period 1915–1990, Allen²⁹ explored the impact of international sanctions on the politics of target countries. The results showed that authoritarian leaders are less constrained than democratic leaders, and democratic countries are therefore more susceptible to sanctions’ pressure. Mazaheri³¹ noted that although sanctions against Iraq prevented the government from acquiring weapons of mass destruction, it cannot be denied that sanctions against Iraq were politically unsuccessful, reinforcing rather than weakening the rule of the target government.

International sanctions impact the social welfare of the target country, including human rights, public health, income distribution, health care, etc. More specifically, Gibbons and Garfield³² reported on the impact of international sanctions on the health, welfare, and human rights of Haiti from 1991 to 1999 through interviews with its people. The results showed that international sanctions caused a number of social problems in Haiti such as rising unemployment, rising mortality among children aged 1 to 4, the breakdown of the family unit, etc. Even after five years of sanctions, the impact continued. Employing the panel correction error model on data from 1970 to 2000, Peksen³³ analyzed the impact of international sanctions on the public health status of the target country, proving that sanctions imposed by the United States have a greater negative impact on public health conditions in the target country than any other sanctions. Baradaran-Seyed and Majdzadeh³⁴ stated that sanctions against Iran have led to increased mortality in patients with complex diseases and cancer, a shortage of supplies for medicines, health services, vaccines, etc. Peksen³⁵ analyzed the impact of international sanctions on vulnerable groups and ethnic groups in the target country by using data from more than 900 ethnic groups from 1950 to 2003. The results showed that compared with unilateral sanctions, multilateral sanctions cause greater harm to the welfare of ethnic groups in the target country. Aloosh et al.³⁶ also demonstrated the negative impact of economic sanctions on the overall welfare of the target country from a health perspective. Using 116 international sanction cases from 1960 to 2008 and utilizing a fixed-effects model, Afesorgbor and Mahadevan⁶ investigated the impact of international sanctions on the income gap of target countries. The results of the study showed that international sanctions have a negative impact on income distribution, and the longer the sanctions last, the greater is the impact on income inequality. This links up with Jeong³⁷ who pointed out that import sanctions increase inequality of labor-abundant targets.

Economic sanctions can also have an impact on the energy sector of the target country, which has attracted the attention of some scholars. More specifically, Ahmadi³⁸ empirically analyzed the production and export of Iranian oil after sanctions by the United Nations and the United States and found that the sanctions had a negative impact on Iran’s oil production and hindered the development of the Iranian energy industry. Using panel data of 30 target countries from 1996 to 2015, Chen et al.¹⁷ investigate the impact of international sanctions on energy efficiency and found that the impact of different types of sanctions on the energy efficiency of the target country is different. Specifically, unilateral sanctions lead to a decline in energy efficiency. Conversely, plurilateral sanctions increase the energy efficiency of the target country. Furthermore, Tuzova and Qayum³⁹ indicated that the economic sanctions of U.S. and Europe control Russia’s energy technology exports, which seriously negatively affected the country’s energy sector. Tyll et al.⁴⁰ indicated that the valuations of the fossil fuel witness significant and negative decline when sanctioning a net importer.

The existing literature rarely examines the impact of international sanctions on energy security in the target country directly. In addition, current studies on the impact of sanctions on energy are mostly based on a single case (country) study, such as sanctions against Russia and Iran, and there is a lack of empirical research based on statistical data from a global perspective.¹⁶ Notably, international sanctions can influence the energy security of target countries in a direct or indirect way. Combining the literature mentioned above, we find that international sanctions exert a significant impact on oil production,¹⁰ energy imports and exports,³⁹ and energy efficiency,¹⁷ which inevitably affect the energy security of target countries. Thus, energy security is no longer a domestic economic policy issue and has become a highly political issue related to national security. At the same time, the implementation of international sanctions is a vital tool of foreign policy and an important method for resolving international conflicts. Therefore, it is significant to investigate how international sanctions can influence the energy security of target countries. We look to fill in the gap of existing research.

Data and methodology

Data

This paper investigates the impacts of international sanctions on energy security of target countries by using panel data from them over the period 1996–2014. Due to the availability of data, there are 27 target countries with net energy imports divided by energy use (Energy imports) as the dependent variable, while only 11 target countries are purposely selected to test robustness with oil reserves as the dependent variable, including Azerbaijan, China, Colombia, Indonesia, Nigeria, Peru, Russian Federation, Sudan, Thailand, Venezuela, and Vietnam. Most of the data are from World Development Indicator (WDI), GIGA Sanctions Data Set, OECD Statistics, IEA Statistics, BP Statistical Review of World Energy, and Worldwide Governance Indicators (WGI).

The dependent variable

Energy security: Understanding the concept of energy security is vital. However, it is a complex concept with multiple dimensions and it has different meanings for different countries at different times.^41–44 Based on the connotation and extension of energy security, the Asia Pacific Energy Research Centre (APERC) has proposed that energy security includes the four dimensions of availability, accessibility, affordability, and acceptability,⁴⁵ which has also been widely recognized by previous scholars.^46,47,b In the four dimensions of energy security, the accessibility of energy security is strongly related to geopolitical elements.⁴⁷ Geopolitics can limit the availability of energy in countries even though the world is not facing an overall shortage of energy.⁴⁸ Moreover, international sanctions are the important methods of resolving international conflicts in a global environment with profound changes in geopolitical patterns. From this perspective, energy security is generally assessed through energy imports dependence or international trade in energy.^49,50 Therefore, due to the research focus and the availability of data, this paper cannot quantify each dimension. We first follow Chalvatzis and Ioannidis⁵¹ and adopt net energy imports divided by energy use (proxied by Energy imports) to represent the energy security of target countries.^c Sovacool and Mukherjee¹³ used a country’s energy reserves to represent energy security. However, due to difficulties in obtaining the data of energy reserves and as the stability of oil supply is an important condition for ensuring a country’s energy security,⁵² we therefore select oil reserves as another indicator of energy security.

We use Energy imports and Oil reserves to represent net energy imports divided by energy use and oil reserves, respectively. The data of net energy imports divided by energy use comes from World Development Indicator (WDI) and the data of oil reserves come from BP Statistical Review of World Energy.

Explanatory variables

There are different types of international sanctions. As mentioned in related studies,^22,53,54 different types of international sanctions inevitably have impacts on target countries. Because the goal of our research is to investigate the effect of different kinds of sanctions on energy security of target countries, we follow Portela and Soest⁵⁵ to classify international sanctions. For example, from their different characteristics of measures, sanctions can be divided into unilateral sanctions (the sanctions were imposed by either the EU or the US only) and plurilateral sanctions (the sanctions were imposed by the EU and the US both jointly).^d Depending on the senders, international sanctions can be divided into U.S. sanctions (imposed by the United States), EU sanctions (imposed by the European Union), and UN sanctions (imposed by the United Nations). According to different means and aims, they can be divided into economic sanctions and non-economic sanctions. According to the inverse degree of “targetedness” of measures, this paper also adopts different intensity of sanctions. The definitions of the different types of sanctions are shown in the Table 1. We use Unilateral, Plurilateral, US, EU, UN, Eco, Non-eco, and Intensity to represent unilateral, plurilateral, U.S., EU, UN, economic, non-economic, and the intensity of sanctions, respectively, for purposely investigating the impacts of different kinds of sanctions on energy security.^e To make our research more convincing, we also add the following control variables in this paper.

Table 1.

Definitions of different types of sanctions.

Variable	Definition
Unilateral	Unilateral mainly refer to those imposed by only the United States (US) or only the European Union (EU), respectively. It equals to 1 if the target country suffered sanctions by either US or EU only, and equals to 0 if otherwise.
Plurilateral	Plurilateral refers to those imposed by the U.S. and EU jointly. It equals to 1 if the target country suffered sanctions by US and EU jointly, and equals to 0 if otherwise.
US	US refers to sanctions imposed by the United States (US). It equals to 1 if the sanctions were imposed by US, and equals to 0 if otherwise.
EU	EU refers to sanctions imposed by the European Union (EU). It equals to 1 if the sanctions were imposed by EU, and equals to 0 if otherwise.
UN	UN refers to sanctions were mandated by the United Nation (UN). It equals to 1 if the sanctions were imposed by UN, and equals to 0 if otherwise.
Eco	Eco indicates the sanction measures are designed to affect the economy of the target country, such as freezing of assets, arms embargo, aid sanctions: the partial or full suspension of aid, commodity embargo: import and export sanctions on selected commodities; the subtype arms embargo is treated in separate category, flight ban, financial sanctions and complete ban of trade and financial relations. It equals to 1 if the target country is subject to economic sanctions, and equals to 0 if otherwise.
Non-eco	Non-eco indicates that the measures are designed not to affect the economy of the target country, such as diplomatic sanctions, visa ban, interruption of military cooperation and flight ban. It equals to 1 if the target country is subject to non-economic sanctions, and equals to 0 if otherwise.
Intensity	This variable is an ordinal variable and indicates the intensity of sanctions in ascending order. It involves an inverse degree of “targetedness” of measures. The intensity of sanctions is an ordinal variable from 1 to 5.

GDP: Gross domestic product (GDP) reflects the level of economic development of a country. The theory of Environmental Kuznets Curve (EKC) proposed by Grossman and Krueger⁵⁶ reasonably describes the relationship between per capita income and environmental pollution. However, some scholars questioned the accuracy of the N-shape relationship; for instance, Harbaugh et al.⁵⁷ indicated that the EKC may also be an N-shape affected by time and regional characteristics, thus agreeing with the viewpoint of Glaser⁵⁸ and Akbostancı et al.⁵⁹ Moreover, some other studies presented the conclusion of a U-shape relationship between economic growth and environment pollution. Therefore, we follow Chang et al.⁶⁰ and use real per capita GDP (constant at 2010 US dollars) and the square of per capita GDP as control variables (proxied by GDP and GDP²).

Industry: The influence of the change of industrial structure on energy security mainly includes the two aspects of scale effects and technology effects. On the one hand, during the period of accelerating industrial development, energy demand increases rapidly, which exerts great pressure on energy supply, further increasing the external dependence of energy and ultimately having a negative impact on energy security.⁶¹ On the other hand, the industrialization process also improves the level of industrial technology, which raises energy efficiency, reduces reliance on imported energy, and ultimately contributes to energy security.⁶² Therefore, the impact of industrial structure on energy security depends on the trade-off between economies of scale and technology. We use the percentage of industry added value to GDP to represent the industrial structure (proxied by Industry) of target countries.

Efficiency: The influence of political factors on a country’s energy security cannot be ignored. Government has an impact on energy security by formulating the policies of energy and environment.⁶⁰ Specifically, energy and environment policies implemented through higher government efficiency help to improve energy efficiency, reduce energy import dependence, build energy strategic reserves, and ultimately have a positive impact on energy security. However, the lack of government efficiency is more likely to cause policy failure, which has a negative impact on energy security. Therefore, we use the variable Efficiency to measure government efficiency.

Openness: The degree of economic openness is an important indicator to measure the degree of external dependence. The improvement of trade openness in a country reduces energy consumption and demand by introducing advanced foreign technology.⁶³ Moreover, in the case of limited energy resources, the reduction of energy consumption and demand reduces energy import dependence and ultimately has a positive impact on energy security. In order to purposely analyze the relationship between economic openness and energy security, we follow Jayanthakumaran and Liu⁶⁴ and use the sum of exports and imports of goods and services divided by GDP to represent economic openness (proxied by Openness) of target countries.

FER: Adequate foreign exchange reserves are a favorable guarantee for making full use of international energy resources. The greater they are, the stronger is the country’s ability to pay for energy imports in the long run.⁶⁵ Therefore, higher foreign exchange reserves lead to better energy security. Following Dash and Narayanan,⁶⁶ we adopt total reserves in months of imports to measure the foreign exchange reserves of target countries. We use the FRE variable to represent the foreign exchange reserves of target countries.

Oil price: With oil as an important strategic resource in international relations, its international price fluctuations are affected by international geopolitics and affect the energy security of the target country.⁶⁷ When the oil price rises, it will cause insufficient supply in the oil market. At the same time, the linkage effect of oil prices also pushes up the price of other energy sources and raises the cost of imported energy, which ultimately has a major impact on energy security.⁶⁸ Therefore, we add imported crude oil prices (proxied by Oil price) as one of the control variables to analyze the relationship between oil price and energy security in target countries.

Data description

We investigate the impact of international sanctions on energy security using panel data of target countries from 1996 to 2014. The descriptive statistics of all variables are shown in Table 2. It is found that the average of Energy imports (energy imports, net % of energy use) is -15.827, however, the standard deviation is 95.584, indicating that the difference in net energy imports divided by energy use among different target countries is big. The mean of Unilateral is bigger than Plurilateral, indicating that compared to plurilateral sanctions, target countries are more subject to unilateral sanctions. As for US, EU, and UN variables, we can see that among the three types of sanctions, U.S. sanctions account for the highest proportion and UN sanctions are the lowest, which is consistent with Neuenkirch and Neumeier.⁶⁹ From the mean of Eco and Non-eco variables, it can be seen that economic sanctions have a larger proportion than non-economic sanctions. The average of Non-eco is 0.010, indicating that few countries are subject to non-economic sanctions. The mean of Intensity is 1.737 and its standard deviation is 2.740, implying that the intensity of sanctions in each target country varies greatly. The difference between maximum and minimum of GDP is large, which means that the level of economic development of the target countries varies greatly. The difference between maximum and minimum of Industry is large, implying that the industry structure of different target countries is large. The mean of Efficiency (government efficiency) is 0.647, but its standard deviation is large, denoting a big difference in governance efficiency among different target countries. The difference between maximum and minimum of Openness, FER, and Oil price is big, implying that the levels of economic openness, foreign exchange reserves, and oil price vary greatly from target country to target country.

Table 2.

Descriptive statistics.

Variable	Observations	Mean	Std. Dev.	Min	Max
Energy imports	513	–15.827	94.584	–465.487	96.812
Oil reserves	209	29.783	56.398	0.2	300
Unilateral	513	0.162	0.369	0	1
Plurilateral	513	0.156	0.363	0	1
US	513	0.255	0.436	0	1
EU	513	0.222	0.416	0	1
UN	513	0.062	0.242	0	1
Eco	513	0.339	0.474	0	1
Non-eco	513	0.010	0.098	0	1
Intensity	513	1.737	2.740	0	11
GDP	513	3725.358	3481.534	258.595	14777.3
Industry	513	30.501	10.101	2.526	66.1
Efficiency	513	0.647	2.581	–1.673	11.31
Openness	513	69.573	34.579	0.167	169.535
FER	513	4.936	3.713	0.037	25.676
Oil price	513	56.659	34.901	12.72	111.67

Table 3 presents the correlation and variance inflating factor of the key variables to examine if there exist possible multicollinearity problems. Craney and Surles⁷⁰ indicate that the VIF value must be less than 5 and the tolerance value should be greater than 0.2. Hence, from Table 3, we can conclude that each variable is independent and not clearly related to the other. Moreover, the correlation of the control variables is generally not high (threshold 0.7), so there is no serious multicollinearity.⁷¹

Table 3.

Multicollinearity test results.

	GDP	Industry	Efficiency	Openness	FER	Oil price	VIF	Tolerance
GDP	1.000						1.23	0.81
Industry	0.265	1.000					1.30	0.77
Efficiency	0.217	–0.025	1.000				1.41	0.71
Openness	0.157	0.160	0.053	1.000			1.19	0.84
FER	0.490	0.331	0.107	–0.121	1.000		1.44	0.70
Oil price	0.229	0.091	–0.489	0.088	0.238	1.000	1.51	0.66

Note: Tolerance value should be more than 0.2, and the VIF value should be less than 5, indicating no multicollinearity.

Figure 1 shows the plots of Energy imports for 27 target countries over the period 1996–2014. Most of these countries are developing economies and rich in mineral resources. It can be found that Energy imports in most countries declined significantly in 2008, however began to exhibit an obvious upward trend since 2010. The main reason is that the 2008 global financial crisis had a negative impact on the economies of most target countries. Lower levels of economic development decrease energy consumption and further drop the demand and imports for energy.⁷² However, the economies of most countries began to recover since 2010, which increased the demand for energy and ultimately increased energy imports.

Figure 1.

Plots of Energy imports for target countries from 1996 to 2014.

Empirical model

Following Peksen and Drury²⁹ and Kwaku,⁷³ we investigate the impact of international sanctions on the energy security of target countries with panel data. Compared to cross-sectional data and time series data, panel data can help control individual heterogeneity and easily avoid multiple collinearity problems.⁷⁴ In addition, the panel data approach is more suitable for studying the dynamic adjustment process and can identify impacts that cannot be estimated by just using cross-section or time series data alone. Therefore, we analyze the impact of different types of international sanctions on the energy security of target countries from panel data over the period 1996–2014. We first use static panel models for the empirical research as follows:

{Energy imports}_{i t} = \propto + β {Sanctions}_{i t} + γ X_{i t} + C_{i} + Y_{t} + ε_{i, t}

(1)

In equation (1), Energy imports stands for net energy imports divided by energy use in country i and year t; Sanctions is the independent variable that represents different kinds of international sanctions; X corresponds to a vector of control variables that affect the energy security in target countries, which include GDP, Industry, Efficiency, Openness, FER, and Oil price; $C_{i}$ is the fixed effect variable of country; $Y_{t}$ is a vector of year fixed effects; and $ε_{i, t}$ is the error term.

Empirical results

The primary findings

Energy imports as dependent variable

We first analyze the impact of different kinds of sanctions on Energy imports using the panel fixed effect model with a panel of 27 target countries from 1996 to 2014 in Table 4. Column 1 reports the results of how unilateral sanctions and plurilateral sanctions affect energy security. Column 2 reports the results of how U.S., EU, and UN sanctions influence energy security, while column 3 reports the results of the impact of economic sanctions and non-economic sanctions on the energy security of target countries. The coefficients for the intensity of international sanctions are reported in column 4. We analyze and compare the impact of different sanctions categories on Energy imports based on the different classifications mentioned above.

Table 4.

Estimation results of the panel fixed effect model – Energy imports is dependent variable.

Variables	(1)	(2)	(3)	(4)
Unilateral	19.728^*
	(2.05)
Plurilateral	22.201
	(0.91)
US		32.261^***
		(2.90)
EU		–6.775
		(–0.80)
UN		–21.703
		(–1.32)
Eco			21.181^***
			(5.55)
Non-eco			–18.194
			(–1.35)
Intensity				3.504^***
				(3.69)
GDP	–5.008^**	–4.870^**	–5.124^***	–4.983^***
	(–2.34)	(–2.45)	(–13.93)	(–13.50)
GDP²	0.020^**	0.019^**	0.021^***	0.020^***
	(2.31)	(2.29)	(11.25)	(10.90)
Industry	–3.626^***	–3.394^***	–3.565^***	–3.764^***
	(–3.64)	(–3.63)	(–11.68)	(–12.19)
Efficiency	–0.895	–2.518	–0.229	–1.007
	(–0.43)	(–1.31)	(–0.17)	(–0.73)
Openness	0.378	0.475	0.358^***	0.393^***
	(1.31)	(1.70)	(3.25)	(3.49)
FER	1.366	1.254	1.487^**	1.282^*
	(0.84)	(0.77)	(2.25)	(1.90)
Oil price	0.549	0.402	0.616^***	0.521^***
	(1.54)	(1.23)	(3.91)	(3.27)
Constant	162.139^***	160.744^***	158.186^***	166.882^***
	(3.35)	(3.67)	(10.60)	(11.02)
Obs.	512	513	513	513
R²	0.522	0.557	0.528	0.506
F	351.106	21.359	19.784	18.851

Note: The values in parentheses denote the t-statistics. *, **, and *** denote significance at the 10%, 5%, and 1% levels, respectively.

From column 1, we find that the variable Unilateral is significantly positive at the 10% level, while Plurilateral is not significant. Specifically, the estimated coefficient of Unilateral is positive and statistically significant at the 10% level in column (1), which indicates that unilateral sanctions have a significantly negative impact on energy security by increasing Energy imports in the target country. This result is consistent with the arguments of Luo,⁷⁵ who stated that unilateral sanctions by the United States are not conducive to energy security in East Asia. However, the coefficients of Plurilateral are insignificant, indicating that plurilateral sanctions have no impact on energy security in target countries. Some scholars also hold the same view (e.g. Elliot et al.⁷⁶ and Drezner⁷⁷). The main reason is that the United States and the European Union usually have conflicts of interest in imposing sanctions on target countries jointly, making such sanctions ineffective.⁷⁸ For example, Sun⁷⁹ indicated that in the new round of economic sanctions against Russia by the U.S. and EU in 2014, the EU was worried about damaging its own interests, especially energy trade, and so it was difficult for the EU to cooperate with the U.S. and to achieve the expected goals. Therefore, compared to unilateral sanctions imposed by either the EU or the U.S. only, the plurilateral sanctions by both the U.S. and EU jointly have no significant impact on the energy security of target countries.

From column 2, we find that only the variable US is significantly positive at the 1% level, suggesting that sanctions imposed by the U.S. have a significantly negative impact on energy security by increasing Energy imports in the target country, while the sanctions imposed by the EU and UN have no impact on the energy security in target countries. The reason for the ineffectiveness of EU sanctions is that the sanctions imposed by its member states are superficially consistent, but they easily fall into the dilemma of “consistent action”.⁸⁰ Specifically, although the EU is the most integrated regional international organization in the world, it is not an international organization that is above the national sovereignty of its member states, making its collective decision-making not forceful and binding. Therefore, some EU member states often do not really implement the sanctions that have been reached through an agreement, but which harm their own interests, making it difficult for sanctions to have any real impact on the energy security of target countries. The reason for the ineffectiveness of UN sanctions is due to a fractious Security Council.⁸¹ For example, the interests of the members of the Security Council are sensitive, which results in internal wrangling and a lack of transparency in information, ultimately making UN sanctions ineffective.

From the results of column 3, the coefficient of Eco is positive and statistically significant at the 1% level, but the coefficient of Non-eco is not significant, indicating that economic sanctions have a significantly negative impact on energy security by increasing Energy imports in the target country, while the non-economic sanctions have no significant impact on energy security in the target countries. The main reason is that compared with non-economic sanctions, economic sanctions are designed to affect the economy of the target country.⁵⁵ It is known that the restriction on energy imports and exports is one of the measures for economic sanctions. Therefore, economic sanctions inevitably affect energy security by affecting the energy imports and exports of target countries.⁸² We know that non-economic sanctions mainly include diplomatic sanctions, visa bans, as well as interruption of military cooperation and flights, which have little to do with a country’s energy sector and therefore do not have a negative impact on the energy security of the target country.

The estimated coefficient of Intensity is positive and statistically significant at the 1% level in column 4, suggesting that for every level of increase in the intensity of sanctions, Energy imports rise by 3.504. Therefore, an increase in the intensity of sanctions significantly drops the energy security of target countries. The argument that the higher the intensity level of sanctions is the more effective the sanctions are is also supported by Whang.⁸³

As for control variables, the coefficient of GDP is significantly negative and the coefficient of GDP² is significantly positive at the 5% level in all columns, implying that there exists a U-shape relationship between economic growth and energy security. The coefficient of Industry is negative and statistically significant at the 1% level in all columns, suggesting that a greater share of industrial value-added in GDP may lead to a decrease of Energy imports. In other words, improving the industrial structure has a positive impact on the energy security of target countries. This result is consistent with Kong and Bian,⁸⁴ who indicated that optimizing the industrial structure can improve the level of industrial technology and further promote the improvement of energy efficiency, which has a positive effect on energy security.

Oil reserves as dependent variable

Sovacool and Mukherjee¹³ indicated that energy reserves reflect the “Availability” of the four dimensions of energy security in the previous section. For a deeper investigation, we choose Oil reserves as another indicator to measure energy security. Figure 2 shows the plots of Oil reserves for the 11 target countries over the period 1996–2014. Most of these countries are oil producers with abundant oil reserves. From Figure 2, we can see that Azerbaijan’s oil reserves increased sharply in 2002. The main reason is that Azerbaijan began to introduce foreign capital and technology to enhance the exploration, development, and processing capabilities of its oil industry. China’s oil reserves were unstable before 2004, however, they have risen steadily since 2004. The main reason is that China officially planned to build a national oil strategic reserve base in 2004 to cope with the safety risks that oil supply disruption may bring. In general, oil reserves in Indonesia have shown a downward trend from 1996 to 2014. The main reason is that Indonesia’s energy mining technology is low. At the same time, Indonesia’s energy reserves are decreasing with large-scale energy exploitation domestically. Countries with an overall rise in oil reserves are Nigeria, Peru, Venezuela, and Vietnam. Sudan’s oil reserves have grown substantially in 2006, which is mainly due to cooperation with China in the oil sector.

Figure 2.

Plots of Oil reserves for target countries from 1996 to 2014.

We investigate the impact of different kinds of sanctions and the intensity of sanctions on Oil reserves of the 11 target countries by using fixed effect model in Table 5. Specifically, the coefficients of Unilateral, US, Eco, and Intensity are positive and significant at the 5% level, implying that unilateral sanctions, U.S. sanctions, economic sanctions, and the intensity of sanctions contribute to the increase in Oil reserves of target countries. These results are consistent with Liu,²⁰ who indicated that after being sanctioned by the West, South Africa has reserved a lot of oil in the short term, but consumes a lot of manpower, material resources, and financial resources for it. The potential reason may be that target countries usually encounter potential risks of oil supply disruption when they are sanctioned,⁸⁵ and so increasing oil reserves can reduce risks and play a preventive role to a certain extent.

Table 5.

Estimation results of the panel fixed effect model – Oil reserves is dependent variable.

Variables	(1)	(2)	(3)	(4)
Unilateral	30.544^*
	(2.01)
Plurilateral	38.129
	(1.76)
US		35.388^**
		(2.40)
EU		5.408
		(0.47)
Eco			32.227^***
			(5.01)
Non-eco			13.535
			(0.72)
Intensity				6.091^***
				(3.49)
GDP	–1.702	–1.662	–2.027^***	–1.977^***
	(–1.18)	(–1.15)	(–3.26)	(–3.00)
GDP²	0.012	0.012	0.013^***	0.015^***
	(1.44)	(1.45)	(4.52)	(5.03)
Industry	0.987	1.144	1.201^***	0.846^**
	(1.54)	(1.56)	(2.92)	(2.01)
Efficiency	1.142	0.484	2.173	1.815
	(0.68)	(0.27)	(1.07)	(1.08)
Openness	–0.324	–0.330	–0.313^**	–0.183
	(–1.42)	(–1.61)	(–1.99)	(–1.16)
FER	–3.551^*	–3.729^**	–3.436^***	–3.903^***
	(–2.07)	(–2.43)	(–4.62)	(–4.79)
Oil price	0.290	0.772	0.911^***	0.739^***
	(1.04)	(1.42)	(3.53)	(3.00)
Constant	(0.98)	7.862	6.584	14.678
	52.047^*	(0.31)	(0.34)	(0.73)
Obs.	209	209	209	209
R²	0.505	0.517	0.509	0.474
F	6.741	.	6.852	6.238

Note: The values in parentheses denote the t-statistics. *, **, and *** denote significance at the 10%, 5%, and 1% levels, respectively. UN variable is not included, because the sample countries were not sanctioned by UN when Oil reserves is the dependent variable.

Robustness check

Whether the endogenous problem in empirical analysis can be effectively solved is the key to influencing the objectivity of empirical results. The causes of endogeneity vary, among which the most crucial reasons are the bias of omitted variables and reverse causality. Because we have added some significant control variables that may affect energy security, the bias of omitted variables is not the main cause of endogeneity. However, reverse causality is an important factor that causes the endogenous problem. Specifically, most target countries are energy-dependent, making them more likely to be sanctioned.⁸⁶ For example, Vakhshouri⁸⁷ and Gharehgozli⁸⁸ indicated that Iran is rich in energy reserves and plays an important role in global energy supply, meaning the U.S. is more inclined to impose sanctions on Iran and affect its energy exports in the medium term and long term. The same applies to Venezuela. It is targeted, because the exporting of its oil is not under Western control. Furthermore, after JCPOA, Iran’s exports cut into the profits of oil giants. These giants heavily lobbied to stop Iran from exporting oil.

In order to solve endogenous problems caused by some unobserved factors that change with time and reserve causality, we further use the bias-corrected Least-Squares Dummy Variables (LSDVC) developed by Kiviet⁸⁹ to ensure robustness of our results. The LSDVC models include LSDVC (AB) and LSDVC (BB), which represent the bias corrected estimates initialized by Arellano and Bond⁹⁰ and Blundell and Bond,⁹¹ respectively. The empirical results are reported in Tables 6 and 7, respectively. The bootstrapped standard errors are generated with 50 replications. The estimated results of the robustness test are generally consistent with the results of the basic regression analysis. These empirical results also indicate that international sanctions do significantly influence the energy security of target countries negatively.

Table 6.

Estimation results of the LSDVC model – Energy imports is dependent variable.

	LSDVC (AB)				LSDVC (BB)
	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
L. Energy	0.858^***	0.844^***	0.856^***	0.862^***	0.907^***	0.899^***	0.909^***	0.915^***
imports	(29.93)	(29.79)	(29.35)	(29.41)	(45.36)	(39.26)	(45.58)	(44.92)
Unilateral	5.130^**				4.261^***
	(2.00)				(3.81)
Plurilateral	3.493				2.202
	(0.77)				(0.59)
US		6.752^***				5.113^***
		(2.58)				(6.84)
EU		–0.515				–0.389
		(–0.18)				(–1.04)
UN		–4.303				–3.917
		(–0.49)				(–1.46)
Eco			4.692^**				3.622^***
			(2.26)				(3.22)
Non-eco			–1.078				–0.676
			(–0.17)				(–0.12)
Intensity				0.952^*				0.732^***
				(1.86)				(4.30)
N	485	486	486	486	485	486	486	486

Note: The values in parentheses denote the t-statistics. *, **, and *** denote significance at the 10%, 5%, and 1% levels, respectively. “L. Energy imports” represents the lagged dependent variable.

Table 7.

Estimation results of the LSDVC model – Oil reserves is dependent variable.

	LSDVC (AB)				LSDVC (BB)
	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
L. Oil	1.008^***	1.000^***	1.006^***	1.014^***	1.021^***	1.020^***	1.024^***	1.031^***
reserves	(30.05)	(30.93)	(30.08)	(33.39)	(35.17)	(24.06)	(22.81)	(40.62)
Unilateral	5.544^***				5.351^***
	(2.71)				(2.59)
Plurilateral	4.088				3.513
	(0.98)				(0.86)
US		6.124^**				5.662^**
		(2.53)				(2.18)
EU		0.392				0.166
		(0.13)				(0.09)
UN			5.560^***				5.074^***
			(3.07)				(3.90)
Eco			4.294				3.757
			(0.73)				(1.01)
Non-eco				1.203^**				1.119^**
				(2.08)				(1.99)
Intensity	1.008^***	1.000^***	1.006^***	1.014^***	1.021^***	1.020^***	1.024^***	1.031^***
	(30.05)	(30.93)	(30.08)	(33.39)	(35.17)	(24.06)	(22.81)	(40.62)
N	198	198	198	198	198	198	198	198

Note: The values in parentheses denote the t-statistics. **, and *** denote significance at the 5% and 1% levels, respectively. “L. Oil reserves” represents the lagged dependent variable.

Conclusion and policy implications

This paper tests the impacts of different kinds of international sanctions and the intensity of sanctions on the energy security of target countries using the panel fixed effect model and LSDVC (AB and BB) approach over the period 1996–2014. Our evidence indicates that international sanctions do significantly negatively influence the energy security of target countries in some cases. Specifically, unilateral sanctions, the imposition of U.S. sanctions, economic sanctions, and the intensity of sanctions have a significantly negative impact on energy security. However, plurilateral sanctions, EU sanctions, UN sanctions, and non-economic sanctions have no significant impact on energy security of target countries. The results of endogeneity concerns are also consistent with the results of the basic regression analysis.

From our findings overall, we believe that this research can remind policy makers and scholars who care about the field of energy security to not ignore the impact of external international sanctions on a country’s energy security. In particular, one cannot ignore the negative impact of unilateral sanctions, U.S. sanctions, and economic sanctions on energy security in target countries. Based on the results of the above empirical analysis, we put forward the following empirical implications.

First, according to our findings, those target countries subjected to U.S. sanctions should reduce their reliance on the U.S. market and discover alternative markets for their energy import and export trade, so as to reduce the damage caused by any U.S. sanctions to their energy security. Second, target countries should be wary of economic sanctions, because they are the most common form of international sanctions. The energy import and export enterprises of those target countries should carefully select their trading markets to ensure that each link of the transaction does not touch the so-called minefields of economic sanctions. Third, when the intensity of the sanctions becomes more severe, target countries should take tough anti-sanction measures such as using economic or political means to win over some cooperative countries to reduce the negative impacts of sanctions on their energy security. Therefore, our research fills the gap in the literature about international sanctions and energy security and offers important implications to relevant scholars engaged in this field of study.

This paper has certain guiding significance for future research in the fields of international economics and political economics. For example, there are energy giants that influence the foreign policies of states. Moreover, the leaders of some countries may have a strong energy background, and so sanctions are launched not for national interests, but for private interests. One cannot think of the influence of energy giants’ desire in the U.S. to curb the introduction of Iranian oil into world markets. Accordingly, the impact of government officials’ background on the energy security of the target country needs to be intensively investigated in the future. Another possible research direction is how different types of sanctions imposed at the same time affect energy security.

Footnotes

Declaration of conflicting interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.

ORCID iD

Chun-Ping Chang

Notes

Jun Wen is a Professor at the School of Economics and Finance, Xi’an Jiaotong University. He has accumulated abundant research results and has a certain influence and reputation in the academic community.

Xinxin Zhao is a PhD student of the School of Economics and Finance, Xi’an Jiaotong University. Her main research fields are energy and environmental economics. She published several journal articles in international journals.

Quan-Jing Wang is an Associate Professor at the Business School of Central South University, China. His main research interests are energy environment, overseas investment, corporate innovation and economic growth in transitional countries. He published several journal articles in internationally famous journals such as Research Policy, Energy Economics and so on.

Chun-Ping Chang is a Professor at Shih Chien University, Taiwan. His research areas include political economy, energy economics and panel data analysis. Dr Chang had published his articles (over 100) in European Journal of Political Economy, European Journal of Finance, Economic Letters, Energy Economics, etc.

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