Insurgency and sanctions: Do economic sanctions against state sponsors reduce violence?

States impose economic sanctions for various goals such as deterring nuclear proliferation or territorial invasion, but sanctions can also have important secondary effects besides their primary stated goal. For instance, non-proliferation sanctions against Iran can reduce its resources to pursue other policies such as sponsoring rebel groups in the MENA region. Unfortunately, there are few systematic studies on the important relationship between sanctions and state sponsorship of terrorism, and these unintended consequences of sanctions more broadly. In this paper I address this gap using the bargaining framework and newly available datasets on economic sanctions, state sponsors of rebels, and civil conflict covering the years 1989-2016. I argue that, in general, economic sanctions will reduce the capacity of sponsor states to support rebel groups. However, this reduction in resources will not affect all client groups equally. Both the targeted sponsor states and their rebel clients can strategically respond to the economic pressure of sanctions. Firstly, the targeted sponsor countries will discriminate among their client groups and prioritize those groups that carry greater strategic importance. In particular, they will use insurgents fighting sanction-sender countries as a retaliation tool. Therefore, these groups will continue to receive substantial support and launch attacks. Secondly, client groups that have alternative income sources (such as contraband) will nullify the effects of sanctions by switching to these other sources of funds. My empirical findings support both hypotheses. Sanctions against a group’s foreign sponsors are associated with less violence, but this pacifying effect is weaker if insurgents have access to contraband funds or their target is among the countries imposing sanctions on their sponsor. These results contribute to the literatures on economic sanctions as well as counter-insurgency. They improve our understanding of sanctions as a counter-insurgency tool by highlighting their limits, especially for the countries imposing the sanctions.