CEPR Sanctions Watch August 2023

August 31, 2023

In this edition of Sanctions Watch, covering August 2023:

  • Aid shortfalls, drought, and sanctions take their toll on Afghanistan;
  • The peso hits an all-time low amid a deepening economic crisis in Cuba;
  • The US and Iran make a deal to unfreeze $6 billion in central bank assets;
  • Biden extends Trump’s controversial ban on travel to North Korea;
  • Sanction-wracked Russia sees a jump in number of millionaires and ultrarich;
  • Sanctions hinder efforts to combat raging wildfires in Syria;
  • US and Venezuela are reportedly in direct talks on sanctions relief;
  • Sanctions on Niger risk pushing millions into hunger, says WFP, and more.

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Background: Since the Taliban takeover in 2021, the Biden administration has blocked Afghanistan’s central bank from accessing roughly $7 billion of its foreign reserves held in the United States. Half of these assets have since been allocated to a trust fund largely under US control that has yet to disburse funds to Afghanistan. Around $2 billion have also been blocked by European authorities. Along with a cutoff of aid, and sanctions on Taliban officials, this asset seizure has contributed to a collapse of Afghanistan’s economy.

Two years since the Taliban takeover, and the subsequent freezing of Afghanistan’s central bank assets by the US and allies, even the country’s fragile “famine equilibrium” now appears to be at risk. The Taliban is carrying out brutal repression, particularly against women and ethnic minorities; the agricultural sector has been hit by a prolonged drought; major donors have slashed their humanitarian aid contributions by 70 percent or more; and the US appears disinclined to end its economic isolation policy even though it has failed to yield any positive results. While US officials met with Taliban representatives and discussed sanctions and the frozen assets, among other topics, no progress was reported.

In his appeal for humanitarian aid, the Norwegian Refugee Council’s Jan Egeland said: “I have never seen well-fed men with guns and power change their ways because we starve women and children.” As Afghans for a Better Tomorrow’s Arash Azizzada writes:

The continued freezing of Afghanistan’s assets, the lack of utilization of the so-called “Afghan Fund,” as well as brutal sanctions against the regime disproportionately affect female-led households and ensure Afghans don’t have the money to buy the food that is awaiting them at the local market. Americans should ask themselves if they want to contribute to punishing ordinary Afghan civilians.

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Background: The US embargo against Cuba is one of the oldest and strictest of all US sanctions regimes, prohibiting nearly all trade and financial transactions between the United States and Cuba since the early 1960s. After a brief loosening under Obama, sanctions were tightened and expanded under Trump — a policy the Biden administration has, for the most part, maintained.

The Cuban peso hit an all-time low against the US dollar on informal markets this month as the country’s economic crisis — the worst since the Special Period of the 1990s — continues. In response to what the Central Bank considers a “critical” cash shortage, the Cuban government imposed new cash withdrawal limits for certain private sector actors. The situation is made worse by the country’s difficulty in accessing oil, the result of not only sanctions on Cuba, but also of sanctions targeting oil-producing countries such as Iran, Russia, and Venezuela. In recent months, Cuba has increasingly turned to Mexico for its energy needs, though US sanctions on the vast majority of Cuban tankers significantly inhibits this trade. Fuel is in particularly short supply during the summer months as island residents rely on air conditioning to escape the sweltering heat.

Recognizing that US policies [contribute] “directly and indirectly, to widespread hardships and hunger in Cuba that caused some 313,000 Cubans to abandon the island last year alone,” Senator Peter Welch (D-VT) called on President Biden to remove Cuba from the State Sponsors of Terrorism list, waive Helms-Burton Title III restrictions, and deepen diplomacy. Also this month, Mexican president Andrés Manuel López Obrador denounced the US embargo, calling it a “flagrant violation of human rights,” and Brazilian president Lula da Silva made moves to restore trade ties with Cuba following the Bolsanaro government’s hard-line anti-Cuba policies. And in a minor reversal of Trump-era Cuba policy, the Department of Homeland Security reopened its Citizenship and Immigration Services field office in Havana in the hopes of expediting the processing of family reunification cases.

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Background: US sanctions on Iran began during the 1979 hostage crisis, and currently bar US actors — plus some non-US actors — from almost all trade and financial transactions with Iran. Though certain sanctions were lifted as a result of the 2015 nuclear deal, the majority have been reimposed since the United States’ withdrawal from the agreement. The European Union also maintains certain trade and financial sector sanctions on Iran.

The United States and Iran reached an agreement this month for the release of five Iranian-US dual citizens held in Iranian jail in exchange for the release of several US-imprisoned Iranians and Iranian access to $6 billion in frozen assets. The assets — a portion of the reported $100+ billion in Iranian central bank foreign reserves held frozen abroad as a result of US sanctions (see this explainer by Esfandyar Batmanghelidj) — will be transferred to a Qatari-controlled bank account authorized to use funds only at Iran’s request for humanitarian purposes, such as the purchase of food and medicine. The agreement may take some weeks to be seen through, but the Biden administration reports that the process is “on track.” Though not a formal part of the agreement, Iran has reportedly slowed its enrichment of uranium, and the Biden administration has eased its enforcement of oil sanctions, allowing more Iranian oil onto the global market in the hopes of lowering gas prices.

Following months of back-channel talks, this appears to mark a significant step forward in the easing of tensions between the two nations, and a victory for the diplomatic route, though far short of a return to the 2015 nuclear deal. The National Iranian American Council’s Ryan Costello outlines why the deal is a “win-win,” particularly in helping to ease deadly sanctions-induced medicine shortages. While the unfreezing of assets is sure to be a humanitarian improvement on the status quo, the narrowly remitted Qatari-controlled account is a far cry from sovereign control of Iranian resources, and humanitarian imports, while important, cannot fill the critical role of foreign exchange reserves in the healthy functioning of a stable economy.

A group of 26 Republican senators sent a letter to the administration expressing their disapproval with the agreement.

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North Korea

Background: The United States first imposed sanctions on North Korea during the Korean War in the 1950s. Following the country’s 2006 nuclear test, more stringent sanctions were added, which have periodically intensified since then. US sanctions now target oil imports, and cover most finance and trade as well as the key minerals sector. In addition, the UN Security Council has adopted nine major sanctions resolutions since 2006. The European Union has implemented these in addition to its own sanctions.

President Biden met with his South Korean and Japanese counterparts at Camp David this month amid heightened tensions with North Korea. The summit produced multiple commitments aimed at strengthening economic and security ties, including a working group to combat North Korean “cyber-enabled sanctions evasion” (just this month, Democratic lawmakers asked President Biden to take action to combat North Korean crypto heists) and the establishment of new trilateral military exercises. The North Korean government responded to the meeting by warning of “overwhelming and pre-emptive” action against what it deems are steps toward an “Asian version of NATO.” Even prior to the summit, North Korea had ordered an increase in missile production in response to US-South Korean joint military exercises in the border area separating the two Koreas.

Also this month, the Biden administration sanctioned three entities allegedly linked to the transfer of arms between North Korea and Russia, and renewed a ban on the use of US passports to travel to North Korea. The ban, which was first instituted under Trump, has been criticized for hindering the provision of humanitarian aid, preventing the types of people-to-people exchanges that help to build mutual understanding and peace, and, as Women Cross DMZ’s Cathi Choi writes, for keeping Korean families apart.

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Background: US sanctions on Russia’s financial, energy, and defense sectors began after the 2014 annexation of Crimea. This sanctions regime was greatly expanded, particularly by the United States, the United Kingdom, and the European Union in response to the 2022 invasion of Ukraine, with the barring of most financial transactions and of Russian oil and gas imports, and the freezing of Russian assets abroad, among other measures.

This month, the United States imposed new sanctions on four individuals tied to the Russian Alfa Group — a major oil, gas, and banking conglomerate — as well as a tech-sector industry association and 13 individuals and entities accused of connections to the forced deportation of Ukrainian children. The UK unveiled new sanctions on 25 individuals and entities in Iran, Turkey, Belarus, Slovakia, Switzerland, and the UAE with alleged links to Russian military supply chains. Meanwhile, the G7 and EU are expected to unveil new restrictions next month on the import of diamonds mined in Russia. While the US and UK already have significant restrictions in place, current US sanctions do not cover diamonds mined in Russia but polished and cut elsewhere, and the EU has been reluctant to impose its own, given the scale of the diamond trade in Belgium.

The Russian ruble dropped to a 17-month low on the dollar this month, prompting a major 350 basis point (3.5 percentage point) interest rate hike by the Russian central bank. The sudden shift, after a year and a half of resilience to sanctions, was deemed by some to be a sign of cracks in the Russian economy, and of the ultimate effectiveness of sanctions. Others are less sure. Russian GDP grew 4.9 percent in the second quarter of 2023, outpacing forecasts, and UBS’s annual Global Wealth Report marked Russia as having one of the world’s largest increases in wealth last year, with significant jumps in the number of millionaires and ultrarich. German foreign minister Annalena Baerbock noted in an interview that “Economic sanctions should have an economic impact. But that is not the case.” Largely absent from either side of the discussion is whether and how the desired economic impact would translate into peace in Ukraine, and the potential impacts on civilians inside and outside of Russia.

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Background: As a designated “State Sponsor of Terrorism” since the list’s creation, Syria has faced unilateral sanctions in some form since 1979. These were augmented during the George W. Bush administration, and greatly expanded under Presidents Obama and Trump to bar most financial transactions with Syrian entities. The “Caesar Act,” passed by Congress in 2019, goes even further, imposing secondary sanctions on third-party entities that engage in such transactions, even if they have no connection to the US.

The Biden administration allowed humanitarian sanctions exemptions instituted after February’s earthquake to expire this month. While the six-month exemptions were widely considered a welcome step, they were also criticized from the start — including by US faith-based groups such as the Presbyterian Church USA and Friends Committee on National Legislation — as insufficient in both scope and timeline. In March, the World Bank predicted that recovery and reconstruction efforts would take over three years, and even with the exemptions in place, sanctions hindered relief efforts. In one illustrative case, the UN’s lifesaving disaster response software was blocked as a result of US sanctions. The exemptions expire amid what the Red Cross reports is an ongoing “emergency situation” with affected communities still struggling to meet their basic needs. The EU, in contrast, extended its exemptions by six months in July.

Outside of the earthquake recovery, the Syrian economy as a whole is also suffering in part as a result of US sanctions. The Syrian pound hit a new low against the US dollar this month, forcing the government to cut fuel subsidies, driving a 50 percent increase in the price of medicine, and sparking protests. The Washington Post reports that, as Syria’s “economy collapses,” efforts to combat raging wildfires have also been impaired by US sanctions. Against this backdrop, the US Congress is likely to vote on legislation that would tighten sanctions in Syria sometime after returning from recess in September.

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Background: While the George W. Bush and Obama administrations adopted sanctions on arms purchases and against Venezuelan individuals, it was under Trump that broad financial sanctions and restrictions on oil exports were implemented, with dramatic effects on Venezuela’s economy. In addition, the United States, the United Kingdom, and some other governments have frozen Venezuelan state assets abroad, and have transferred others to Venezuelan opposition actors.

The US and Venezuela are reportedly in direct talks about easing sanctions in exchange for certain measures regarding Venezuela’s presidential election next year. The details of the discussions, and particularly what steps the US requires of the Maduro government, have not been publicized, though the potential sanctions relief appears aimed at the oil sector. The talks have raised some hopes that the Biden administration may finally reverse his predecessor’s “maximum pressure” policies, which have taken a profound toll on the Venezuelan economy and people. The fact that sanctions relief remains predicated on the US’s unilateral judgments regarding Venezuela’s sovereign elections, however, may indicate that meaningful change is still out of reach. Senator Bob Menendez (D-NJ), meanwhile, announced new legislation that would tighten sanctions against the country.

The Maduro government has won a major court battle against the Portuguese-based but majority-US-owned Novo Banco, with the court ruling that the latter must return nearly $1.5 billion in Venezuelan state assets that had been frozen as a result of US sanctions and Portugal’s recognition of Juan Guaidó as president in 2019. The funds have not yet been returned, and it is possible that the decision will be appealed, but the ruling is seen by the government as a significant victory in recognition of its right to nearly $5 billion of frozen state assets held abroad.

Also, a joint Trinidadian-Venezuelan natural gas project, for which the Biden administration granted a limited license in January, has reportedly stalled over the Treasury Department’s stringent restrictions, which the Maduro government rejects as a form of “colonialism.” And in an interview on Democracy Now!, Rep. Greg Casar (D-TX) noted that US sanctions on Venezuela and elsewhere “are ultimately starving people in their home countries and causing forced migration.”

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When a contingent of armed forces led a coup against then-president of Niger Mohamed Bazoum late last month, the United States, European Union, and their regional allies responded by imposing an array of sanctions on the new military government. The World Bank paused all non-private disbursements; the EU, US, and others suspended all humanitarian and security assistance; and, most significantly, the Economic Community of West African States (ECOWAS) froze state assets and blocked all commercial transactions with the country. According to Reuters, “the ECOWAS sanctions also meant Nigeria cut power supply to the country on the 80 megawatt Birnin-Kebbi line, while Ivory Coast suspended imports and exports of Nigerien goods.” These sanctions are already affecting Nigerien civilians. The price of rice and sorghum grew by 21 percent and 14 percent, respectively; food and aid is piling up at the border; and much of the country has been left facing prolonged blackouts, which in turn risks spoiling millions of vaccines. Three million Nigeriens were already struggling to afford one meal per day before the crisis; the World Food Programme warns that, as a result of the crisis, that number may triple.

Major international humanitarian organizations including the International Rescue Committee, Save the Children, CARE International, Oxfam, Mercy Corps, and World Vision warned, “The combination of sanctions and conflict with the existing vulnerabilities in Niger could have devastating effects on the lives of over 4.4 million people in the country who are already in need of humanitarian assistance.” The United Nations has also called for sanctions relief.

In a reminder of how much of the world, including some of the most powerful emerging economies, see the US’s widespread use of unilateral sanctions, the final declaration of this month’s BRICS summit in Johannesburg noted: “We express concern about the use of unilateral coercive measures, which are incompatible with the principles of the Charter of the UN and produce negative effects notably in the developing world. We reiterate our commitment to enhancing and improving global governance by promoting a more agile, effective, efficient, representative, democratic and accountable international and multilateral system.”

In a new report, the International Crisis Group finds that sanctions “can inhibit peace processes and post-conflict recovery, constrain peace organisations, undercut negotiations and entrench divisions between conflict parties.” While the report, for the most part, focuses on relatively targeted sanctions imposed in relation to conflict resolution, rather than on the broadest sanctions regimes and their widespread economic impacts on civilian populations, it provides a salient critique of the US government’s overreliance on sanctions, and highlights how they can undermine peace processes and hinder provision of humanitarian aid.

Also this month, the UN Special Rapporteur on unilateral coercive measures released a new platform for accessing research on the impacts of sanctions.

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About Sanctions Watch

Economic sanctions have become one of the main tools of US foreign policy despite widespread evidence that they can cause severe harm to civilian populations (which may, in fact, be the point). Though now a defining feature of the global economic order, sanctions and their human costs receive relatively little attention in most US media outlets.

CEPR’s Sanctions Watch news bulletin aims to generate more awareness on the use and impact of sanctions through monthly round-ups of news and analysis on US sanctions policy.

Click here to see past editions of CEPR’s Sanctions Watch.

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