Abstract
This study investigates the effects of US sanctions on crude oil prices, and estimates the associated losses or gains accrued to US output due to economic coercion. Using a sample of US sanctions imposed between 1987 and 2016, we find that oil prices exhibit a significant abnormal adjustment in magnitude. We show that the nature of the change is decided by the target country's status either as a net importer or exporter of oil. Our findings further reveal that while the abnormal rise in oil prices, associated with sanctions on net exporters, inflict losses on US output, coercive measures on net importers give rise to economic gains due to significant decline in oil valuations. Such externalities do not appear to be considered when designing and deploying measures of economic coercion. (JEL Q41, Q43, Q48).
•Oil valuations show significant abnormal behavior around start of US sanctions.•Sanctions on net-exporters of oil are associated with positive abnormal returns.•Coercing a net-importer gives rise to significant negative abnormal valuations.•We estimate positive and negative externalities to US economy due to sanctions.•Magnitude of abnormality deepens, when sanctions are not preceded by threat.