CEPR Sanctions Watch, December 2022

January 05, 2023

In this Sanctions Watch, covering December 2022: Seized Afghan assets languish in US-backed trust fund while Afghans prepare for a grueling winter; US lawmakers meet with the president of Cuba and denounce the US embargo; UN experts denounce environmental degradation and loss of life as a result of sanctions against Iran; US, Japan, South Korea impose new sanctions on North Korea following ICBM tests; price cap on Russian oil takes its toll; Chevron resumes exports from Venezuela following November’s license; and more.

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Since the Taliban takeover in 2021, the Biden administration has blocked Afghanistan’s central bank from accessing roughly $7 billion in its foreign reserves held in the United States. Half of these have since been allocated to a trust fund largely under US control that has yet to disburse any 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 has contributed to a collapse of Afghanistan’s economy.

The people of Afghanistan are bracing for a deadly winter. “Afghan families face a terrible dilemma: Food or heat,” warned the International Committee of the Red Cross amid growing cases of malnutrition and pneumonia. “Most can actually afford neither.” A new World Bank survey has found that even prior to the onset of winter, nearly one-third of Afghan households lacked enough money for food, and another third could afford food but not other necessities, such as fuel. Meanwhile, interviews with two of the four board members of the Afghan Fund — the trust to which the Biden administration transferred half of the $7 billion in frozen Afghan central bank assets — reveal that the Fund has yet to make a single disbursement. Any potential release of the funds to the central bank is still many months away. Without the funds, the economy will continue to languish.

Last month, the Taliban announced their decision to ban most women and girls from access to education, as well as from working for NGOs. While such disastrous decisions are likely to deter the United States and other governments from engaging with the Taliban, the “economic isolation” strategy has thus far failed to prevent the Taliban’s repression of women’s rights, and has instead contributed to women’s suffering by deepening economic hardships. “Punitive measures would only hurt the population without changing the Taliban’s stance,” wrote the International Crisis Group’s Graeme Smith and Delaney Simon in December. “No matter how unpleasant the regime in Kabul—and the Taliban’s behavior certainly deserves condemnation—donors should take further steps to stabilize the Afghan economy. To avoid disaster, Western governments must grit their teeth and stop constraining Afghanistan’s chances for development.”

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

A delegation of US lawmakers including Reps. James McGovern, Mark Pocan, and Troy Carter met with Cuban president Miguel Díaz-Canel and other top officials last month, a small but meaningful demonstration of willingness to improve relations between the countries. In a meeting with members of the Cuban National Assembly, Rep. McGovern denounced the US embargo and, in particular, Cuba’s inclusion on the federal state sponsors of terror list. “We want to end the blockade and normalize relations,” he said. “That is the aspiration of our peoples.”

The meetings come against the backdrop of a deepening displacement crisis on the island — the New York Times reports : “over the last year, nearly 250,000 Cubans, more than 2 percent of the island’s 11 million population, have migrated to the United States.” This displacement is largely driven by economic challenges. Compared to the 8 percent growth seen before the start of the pandemic, the Cuban government reports merely 2 percent economic growth in 2022, and predicts 3 percent for the coming year. At the same time, fuel and mechanical part shortages have led to months of regular blackouts on the island, disrupting daily life. These economic challenges are in turn driven in large part by US sanctions. Former deputy national security adviser Ben Rhodes summarized the situation: “This is not rocket science: If you devastate a country 90 miles from your border with sanctions, people will come to your border in search of economic opportunity.”

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US sanctions on Iran began during the 1979 hostage crisis, and currently bar US actors — plus some non-US actors — from most 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. The European Union also maintains certain trade and financial sector sanctions on Iran.

In the midst of the Iranian government’s continued crackdown on protesters, a leaked recording surfaced of President Biden privately calling the Iran nuclear deal “dead,” prompting concerns that the agreement had fallen into a “ coma state ” — effectively not revivable, but not yet declared as such publicly. But while the protests may make a return to the deal more politically difficult, proponents of the agreement, like the European Council on Foreign Relations’ Ellie Geranmayeh, argue that there is little evidence that the alternative — a return to Trump-era “maximum pressure” sanctions — would yield any success. At a discussion of the UN Security Council, Under-Secretary-General for Political and Peacebuilding Affairs Rosemary DiCarlo urged both parties to make serious concessions in order to return to the deal, including the lifting of sanctions. Meanwhile, the EU imposed an additional round of sanctions on 21 state officials and religious leaders. The US Treasury announced more sanctions targeting military officials and a corporation that manufactures equipment for Iran’s police forces.

Five UN independent experts and special rapporteurs, including the special rapporteur on the promotion and protection of human rights in the context of climate change, released a letter outlining US sanctions’ contributions to environmental degradation and the resultant loss of life in Iran. The human rights experts report that US sanctions have contributed to air pollution, for example, by limiting Iranians’ access to vehicles with contemporary emissions standards, and forcing energy companies to abandon solar power projects. “It is time for sanctions that impede Iran’s ability to improve the environment and reduce the ill effects on health and life, to be eased or lifted completely so that Iranians can access their right to a clean environment, the right to health and to life …” the experts noted.

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North Korea

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

Relations on the Korean peninsula continued their now-familiar pattern of tit-for-tat escalation last month. Following November’s intercontinental ballistic missile (ICBM) tests, the United States, Japan, and South Korea began December by imposing new sanctions on three government officials purportedly involved in the country’s weapons program. Shortly thereafter, North Korea responded to South Korean military exercises by firing artillery rounds into the ocean near its border.

Two weeks later, over the span of just a few days: Japan announced a new “national security strategy” involving the purchase of long-range missiles and the doubling of military spending in five years; North Korea launched a new test in the development of a spy satellite and threatened a “resolute and decisive military step” against Japan for its military buildup; the United States flew bombers and stealth jets in a “show of force” joint military exercise with South Korea; and Kim Yo Jong — Kim Jong Un’s sister — called for a new stage of ICBM testing and vowed to continue the weapons program in defiance of sanctions. The month concluded with a dispute over the alleged incursion of North Korean drones into South Korean airspace, followed by another round of North Korean missile tests.

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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, Russian oil and gas imports, and freezing of Russian assets abroad, among other measures.

The European Union’s near-total ban on the import of seaborne Russian crude, and the long-deliberated G7-and-EU-led oil price cap, went into effect on December 5 at a price of $60 per barrel. Russian oil shipments dropped by over 50 percent in the first week that the measures were in place, though much of the initial effect may be driven by unrelated issues in the supply chain, and is expected to lessen as alternative export systems are developed. The effect of these measures on global energy supplies, including for crisis-wracked developing countries, is yet to be seen. Later in the month, the Russian government retaliated by announcing a ban on oil sales to countries that abide by the price cap. Also in December, the European Union agreed to its ninth sanctions package , which includes a ban on certain exports that can be used for military purposes, and sanctions on 100 individuals and entities including the Russian Regional Development Bank.

US- and EU-led sanctions failed to yield the immediate Russian economic collapse that some commentators predicted, but as the year came to a close, the cumulative effects led to a contraction of 3 to 4 percent of GDP in 2022 — as well as to damaging ripple effects across the developing world, leading some African leaders to express concern about the policies during December’s US-Africa Leaders Summit. The Carnegie Endowment warns that Russia’s economic development will be “in reverse” for years, and the country may see “yet another lost decade, with a decade of stagnation followed by a decade of regression.” The Financial Times similarly finds that sanctions have not caused an immediate collapse, but “a steady degradation of the country’s productive capacity,” and US Deputy Secretary of the Treasury Wally Adeyemo predicts “even decades of economic decline.” 

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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 sanctions on oil exports were implemented, with dramatic effects on the country’s economy. In addition, the United States, the United Kingdom, and some other governments have frozen Venezuelan state assets abroad, and transferred others to Venezuelan opposition actors. 

For the first time in years, Chevron is preparing to export a shipment of crude oil from Venezuela to the United States following the Biden administration’s November decision to grant the corporation a six-month license. The shipment will come from Chevron’s existing storage, as it may take months to resume production following years of neglect, and Chevron CEO Michael Wirth has ruled out significant investment in increasing production capacities in the short term. Certain details of the license, including the extent to which the Venezuelan government might see any benefits from the sale, remain unclear . Meanwhile, opposition leaders have expressed concern that the $3 billion in state assets that were transferred to UN authority under December’s agreement are at risk of legal action by the nation’s creditors.

While President Biden’s turn toward engagement with the Maduro government appears to be slowly bearing fruit , the US Senate has doubled down on a sanctions-centered approach, unanimously passing the BOLIVAR Act, which prohibits US federal agencies from awarding contracts to companies that do business with the Maduro government. The Act did not go to a vote in the House, and as sanctions expert and University of Denver professor Francisco Rodríguez points out , is largely symbolic in any cas e, as existing sanctions already prohibit such transactions.

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US sanctions target and affect a number of countries beyond those listed above, including but not limited to Belarus, Myanmar, Nicaragua, Syria, and Zimbabwe.

On December 9, the United Nations Security Council adopted a resolution providing a general carveout to its asset freeze measures for humanitarian-related activities conducted by the UN and certain approved nongovernmental organizations. The resolution, put forth by the United States and Ireland, was adopted by a vote of 14 to 0, with one abstention (India). Two weeks later, the Biden administration followed suit , issuing and amending new general licenses expanding and standardizing carve-outs across sanctions programs related to the provision of humanitarian access by NGOs, and explicitly allowing activity by certain actors like the UN, the International Committee of the Red Cross, and international development banks. 

Human rights and humanitarian groups have welcomed the move, noting that these measures may expand the scope of allowable humanitarian activity and help to lighten sanctions’ “chilling effect” — whereby actors such as financial institutions refuse to engage in even allowable activity for fear of violating sanctions. However, analysts contend that the new exemptions are only marginal improvements that have yet to be proven in practice, and continue to prohibit a  great deal of critical humanitarian activities. Perhaps more importantly, nominal exemptions for humanitarian activities may provide cover for the fact that the sanctions themselves typically drive underlying humanitarian problems. As a result, announcements of exemptions provide positive press for sanctions policies without addressing their inherent humanitarian costs and wider failures as a policy tool.

The Biden administration’s failure to acknowledge the human cost of sanctions is particularly evident in a lengthy Foreign Affairs piece in which Deputy Treasury Secretary Wally Adeyemo defends US sanctions policy toward Russia, and as a whole. Adeyemo describes how “the United States [has] increasingly employed economic sanctions as a core tool of foreign policy” and discusses the “important findings” of a seven-page 2021 review of sanctions policy, namely that sanctions “should be tied to a clearly articulated foreign policy strategy” and “should incorporate detailed economic analysis of their anticipated impacts, including the collateral effects.” To date, no such analysis has been made publicly available. Presumably, the devastation of entire national economies isn’t necessarily categorized as a “collateral effect” given that, earlier in the piece, Adeyemo notes approvingly that Russia “faces years or even decades of economic decline” as a result of sanctions.

Adeyemo’s acknowledgement of the deficiencies of US sanctions policies — “past sanctions were not always well calibrated … the number of U.S. sanctions designations grew over 900 percent from 2000 to 2021—some more carefully designed than others” — would appear to be an understatement given overwhelming evidence that sanctions have widely contributed to poverty , disease , hunger , and even mass death , while, in the vast majority of cases, failing to meet their stated objectives. In a new book on the failures of US sanctions policy, economist Agathe Demarais outlines the many ways that sanctioned countries are developing workarounds to US sanctions, and undermining US financial supremacy in the process. She notes : “History shows that most of the time, nations resist and sanctions fail.”

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About CEPR 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 Sanctions Watch 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 Sanctions Watch.

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