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After 9/11 (2001) US officials stumbled into de facto global sanctioning power…

Brief

US sanctioning power emerged after 9/11 (2001): US control over dollar settlement compels foreign firms to overcomply, amplifying sanctions' reach. But that systemic reach makes sanctions hard to reverse—lifting designations doesn't reliably restore access—so targets (e.g., Iran) have weaker incentives to change behavior, reducing sanctions' utility as a foreign-policy tool.

Why it matters

After 9/11 (2001) US officials stumbled into de facto global sanctioning power because dominance of the US dollar and US control of dollar settlement forces foreign banks and companies to comply, often producing overcompliance to avoid the enormous costs of being cut off from the dollar system.

Key details

  • Because the US cannot reliably undo downstream consequences once firms exit dollar channels, lifting sanctions often fails to restore prior conditions; that inability to credibly promise relief reduces sanctions' effectiveness and helps explain Iran's current resistance to changing behavior.
Source evidence

US sanctioning power is kind of interesting because US officials didn't really know they had it and kind of stumbled into it after 9/11, which made them realize that because the dollar is the international currency and they ultimately control settlement in dollars, even foreign companies would cooperate without asking questions and even go beyond what US officials want them to do because the costs of being cut off from the dollar system are so enormous that overcompliance is actually rational from their point of view.

But the same facts that give US officials so much power also imply they can't actually control that power, because it means that while they can sometimes lift the sanctions themselves, it's much harder to undo their consequences. The problem is that, as a result, sanctions lose part of their effectiveness as a foreign policy tool, because it reduces the incentives of target countries to change their behavior since US officials can't credibly promise to undo the consequences of sanctions. I think this actually explains a lot about Iran's current behavior.