Working Paper: CEPR ID: DP17308
Authors: Kai A. Konrad; Marcel Thum
Abstract: Unlike produced commodities, the extraction and sale of fossil energy resources such as oil or natural gas is an "asset swap": assets stored inthe 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.
Keywords: war; sanction; fossil energy resources; export embargo; depletable resources; crude oil; natural gas; autocratic government; insecure property rights; safety of international financial safehavens
JEL Codes: Q34; Q35; D74; H12; H56; K33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| likelihood of retaining power (D72) | wealth security of financial assets (D14) |
| embargo (P33) | expected wealth losses (G19) |
| political insecurity (F52) | effectiveness of embargoes (F51) |
| insecure property rights (P14) | effectiveness of export embargoes (F14) |
| wealth security of financial assets (D14) | expected wealth losses (G19) |