CEPR Sanctions Watch January 2024

In this edition of Sanctions Watch, covering January 2024:

  • Special inspector general report reveals that disbursal or return of frozen Afghanistan funds remains a distant prospect;
  • Democrats criticize Biden Cuba policy as sanctions cause “inflation bomb” and drive migration to the US;
  • Biden official says US sanctions have halved Iran’s oil output;
  • As tensions escalate, former Defense official calls US’s “coercive,” sanctions-based North Korea policy “dangerous” and “untenable”;
  • US weighs seizing Russian central bank assets despite questions of legality, utility;
  • As mass hunger grows, Human Rights Watch warns of “the effects of expansive international sanctions on the economic rights of Syrians”;
  • Biden begins reimposing sanctions on Venezuela despite concerns about humanitarian impacts, business, migration, and oil prices;
  • Under bombardment and blockade, the people of Gaza face “catastrophic hunger,” and more.

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Background: Following the Taliban takeover in 2021, the Biden administration 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 of central bank assets have also been blocked by European authorities. Along with a cutoff of aid, this asset seizure — representing the near totality of Afghanistan’s foreign reserves — has contributed to a collapse of the country’s economy.

The Office of the Special Inspector General for Afghan Reconstruction’s (SIGAR) January 4 response to a March 2023 congressional letter has provided an update on the state of the Afghan Fund, an organization created with US backing to hold and disburse, “for the benefit of the Afghan people,” $3.5 billion of the $7 billion in Afghan central bank assets that were frozen by the United States. The report has found that nearly a year and a half after its establishment, the Fund has made no disbursements at all, with the US Treasury and State Department “not currently willing to support a return of funds to DAB” (Afghanistan’s Central Bank) unless the bank can demonstrate its independence and ability to prevent terrorist funding. SIGAR notes that the US government has not explained how this can be demonstrated, despite its repeated requests for an explanation, and states that these broad conditions “leave open questions about the specific circumstances under which Treasury and State would support a return of funds to DAB.” The report also mentions that SIGAR was “unable to determine what activities, if any, the Fund’s board of trustees plans to support.”

A new United Nations Development Programme (UNDP) report on Afghanistan’s socioeconomic development over the past two years states:

The sudden cessation of international aid and grants, which had accounted for 40 percent of the country’s Gross Domestic Product (GDP), along with a freeze on international reserves amounting to about US$9 billion and the imposition of international sanctions, triggered a severe balance of payments, banking and payment systems crisis. The inability of [DAB] to easily print banknotes and access US$7 billion of foreign reserves continues to severely limit the execution of the central banking key functions” and has further exacerbated “the decline in economic activity.

It goes on to say that the freezing of foreign reserves and the banking crisis, along with other factors, drove a precipitous 27.2 percent drop in real GDP over the past three years.

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Background: The US embargo against Cuba is one of the oldest and most stringent 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.

At a House Foreign Affairs Committee hearing this month, Rep. Joaquin Castro (D-TX) noted that US sanctions have “dramatically worsened the lives of everyday Cubans,” and described Biden’s “failure to reverse harmful policies like the unwarranted State Sponsor of Terror designation, sanctions, and the embargo” as “a serious missed opportunity.” Rep. Sydney Kamlager-Dove (D-CA) added, “I am also disappointed in the Biden administration’s inaction when it comes to reversing, or meaningfully modifying, 60 years of ineffective and counterproductive policy.” And Rep. Barbara Lee (D-CA), who, remarkably, was barred from the hearing by Cuban American hardliner Maria Salazar (R-FL), shared a statement noting that “After six decades of failure, it is long past time for the United States to try something different.” For her part, Salazar and fellow Republicans used the hearing to attempt to argue that Cuba’s emerging private sector is a “myth”; the Cuban government denied the claims.

Multiple members cited the Biden administration’s failure to reverse Trump’s designation of Cuba as a State Sponsor of Terrorism as particularly egregious. On the third anniversary of that designation, Rep. Steve Cohen (D-TN) sent a letter to the president calling it “baseless” and a “key factor” fueling “Cuba’s deepening humanitarian crisis.” A majority of the Massachusetts Congressional delegation sent a similar letter in December, which was just made public in January. Both letters highlight how US policy drives Cuban migration to the US — a fact that has been repeatedly highlighted by Latin American leaders like Colombia’s Gustavo Petro and Mexico’s Andrés Manuel López Obrador.

To their point, the sanctions-starved Cuban government announced major economic policy shifts that will have significant impacts on everyday Cubans who are already facing a profound humanitarian crisis — subsidy cuts, tax increases, and price increases, including a fivefold jump in gas prices, which one economist referred to as an “inflation bomb.”

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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.

In an open admission of the effects of US sanctions, President Biden’s Senior Adviser for Energy and Investment Amos Hochstein noted this month:

If we weren’t enforcing sanctions on Iranian oil, Iran today would be back to where they were before sanctions, which is at about 2.5 million to 3 million barrels a day [NB: current production is about 1.4 million barrels per day]…. The reason they are not doing that is because they are under sanctions… By and large they are under extreme sanctions; they are not able to develop their gas sector even though they have one of the largest reserves in the world and they export nothing. So I think that we’re doing very well with that.

The Iranian economy, and therefore the Iranian people, continue to suffer under these broad restrictions. By the third week of January, the rial had depreciated 10 percent, meaning “the Iranian currency has fallen 13-fold since 2018, when the United States exited the JCPOA nuclear deal and imposed sanctions on Iran’s oil exports and international banking,” per Iran International.

The Iranian Navy seized an oil tanker in the Gulf of Oman this month in retaliation for action taken by the US last year, in which the same vessel was charged with carrying sanctioned Iranian oil, and its cargo was seized and sold. Also this month, the US and allies imposed multiple new sanctions against individuals and entities accused of supporting Islamic Revolutionary Guard Corps-Quds Force and Iranian-aligned actors like Yemen’s Ansar Allah. Designated entities include Hong Kong- and UAE-based shipping companies and an Iraqi airline, among others.

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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.

As tensions escalate on the Korean peninsula, United States Institute of Peace senior expert and former Defense Department official Frank Aum writes:

The United States and North Korea coexist today in an antagonistic, high-risk stalemate.… The Biden administration has reinforced a coercive, pressure-based approach that relies on diplomatic isolation, military deterrence and economic sanctions to contain, if not change, North Korea’s defiant behavior.… The upshot is a dangerous, simmering situation on the Korean Peninsula that is one misstep away from boiling over into a catastrophic conflict. This status quo is untenable. Washington should explore a new modus vivendi with North Korea that reduces the risk of conflict, improves security and builds mutual trust and understanding in a tangible, proactive and realistic way.

The US imposed sanctions on three Russian entities and one individual for their alleged involvement in testing and transferring North Korean missiles to Russia (see the Russia section below). For its part, the UK is attempting to trigger a UN investigation into these transfers by sending satellite photographs of North Korean shipments to Russia to a UN panel of experts. EFE reports that South Korea has sanctioned 11 ships, along with five individuals and entities, for allegedly transferring oil, coal, and other goods to North Korea, though Reuters notes those targeted are allegedly linked to Pyongyang’s nuclear and missile programs.

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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. It includes the barring of most financial transactions and of Russian oil and gas imports as well as the freezing of Russian assets abroad, among other measures.

In the first half of January, the US imposed sanctions on three Russian entities and one individual for their alleged involvement in testing and transferring North Korean missiles to Russia for its war in Ukraine. Washington followed this up by placing sanctions on a UAE-based shipping company to enforce the G7’s price cap on Russian oil. The executive order issued by the Biden administration last month, which expands the US government’s ability to target third-country financial institutions engaged in dealings with Russia, is reportedly beginning to take effect in China, Turkey, and the UAE, with institutions in these countries increasing scrutiny for Russia-related transactions and dropping or reevaluating their Russian clients.

CNN reports that the US has developed a “novel legal theory” to justify the seizure of Russia’s frozen assets. The theory “rests on the idea that nations affected by Russia’s violations are permitted under international law to try to force Moscow back into compliance using the law of countermeasures,” and that “because Russia’s invasion has upended the international order, [the US and allies] have the right to engage in such countermeasures even though they are not directly at war with Russia.” In order to form a “sound legal basis” for the move and to convince G7 allies to follow suit, Congress is considering the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act (REPO act), which recently passed out of the Senate Foreign Relations Committee and would allow the US government to seize the Russian assets it has frozen and redirect them toward Ukraine’s reconstruction. Cornell University’s Nicholas Mulder writes in the Financial Times that seizing Russia’s assets would harm the West, arguing that the US’s reasoning “has three problems: it lacks compellent effect, it is being invoked by the wrong parties and it undermines the rules-based order western governments claim to defend.” Or, as two former US diplomats more bluntly put it, “that is a very dumb idea.”

EU officials are reportedly less keen on seizing Russia’s assets, given their concern over the initiative’s legality, potential consequences for the euro, and the possibility that Russia may retaliate by seizing Western assets. Instead, the EU is considering a plan that involves taxing profits generated by Russia’s frozen assets, a proposal that has reportedly received the blessing of the EU’s foreign ministers and its member states. The EU has also renewed its sanctions on Russia and begun discussions on a 13th package of sanctions on the country, in addition to sanctioning the Russian company Alorsa, “the world’s largest diamond-mining company by output,” according to Reuters.

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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.

As donor countries slash aid, major humanitarian and human rights groups warn that the economic crisis in Syria is growing increasingly dire — and sanctions are making matters worse. According to the World Food Programme, “The cost of living nearly doubled in the first ten months of 2023 and quadrupled over a two-year period (as of October 2023), while wages remained stagnant.” Further, “Malnutrition rates among mothers and infants in Syria rose at a speed never seen before in 2023. In some parts of the country, one in four mothers were malnourished and 28% of all children’s growth was stunted.” As Human Rights Watch reports, millions are unable to “find or afford enough quality food due to the Syrian government’s diversion of aid, failure to equitably address a debilitating economic crisis brought on by the destruction of infrastructure and crises in neighboring countries, and the effects of expansive international sanctions on the economic rights of Syrians.”

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Background: While the George W. Bush and Obama administrations adopted sanctions on arms and against Venezuelan individuals, it was under Trump that broad financial sanctions and restrictions on oil exports were implemented. These have caused at least tens of thousands of deaths of Venezuelans, from the resulting economic collapse and loss of essential imports and production, including food, medicine, health care, and health infrastructure. In addition, the United States, the United Kingdom, and others have frozen — and in some cases transferred to opposition actors — Venezuelan state assets.

The Biden administration has begun reimposing sanctions that had been temporarily eased in October following the signing of an agreement between the Maduro government and US-aligned opposition factions, beginning with restrictions on business with the state gold mining company Minerven. The about-face, which was condemned by much of the Venezuelan business community, comes as the country’s top court upheld electoral bans on leading opposition candidate María Corina Machado, based on alleged fraud and tax violations, alleged support for an attempted coup in 2019, and her appeals for US sanctions and military intervention. The court also upheld these bans on Henrique Capriles, for alleged “administrative irregularities” during his time as governor. While the October agreement did not include commitments that Machado and Capriles would be allowed to run, the Maduro government supported an appeals process in the hopes of appeasing US pressures. Machado’s political alliance condemned the court decision, but reportedly remains split as to next steps. As pollster Luis Vicente Leon notes, a sanctions snapback could impact oil prices and push Maduro to abandon migration agreements — both potential liabilities for Biden in an election year, to say nothing of its likely impacts on Venezuelan civilians. Mexican president Andrés Manuel López Obrador has also highlighted the connection between sanctions and migration, urging Biden to lift sanctions on Cuba and Venezuela as a part of US-Mexico migration cooperation talks.

Also this month, a Delaware court brought what Vice President Delcy Rodríguez has called “the theft of the century” one step closer to completion, approving claims from 18 creditors seeking a total of $21.3 billion from Citgo, the US-based subsidiary of Venezuela’s state oil company, whose total valuation is only $13 billion. The court had previously ordered the auction of Citgo shares in order to satisfy claims by Venezuela’s creditors. The first round of confidential bids concluded this month, though the Treasury Department issued a three-month stay on the final sale. Citgo has been under the control of US-aligned opposition since the now-failed attempt to install Juan Guaidó as president. Though not a case of sanctions per se, US financial sanctions did play a key role in the debt default that underlies the case.

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The chief economist at the UN’s World Food Programme said this month that the hunger in Gaza is, in his experience, unprecedented: “I’ve been to pretty much any conflict, whether Yemen, whether it was South Sudan, northeast Nigeria, Ethiopia, you name it. And I have never seen anything like this, both in terms of its scale, its magnitude, but also at the pace that this has unfolded.” In addition to Israeli bombardment, the population of Gaza has, since October, been subject to an even more stringent blockade than that which had been in place for nearly two decades. The result is that, according to the UN, more than half a million people in Gaza now face “catastrophic hunger.” Per The New York Times, “The number of people facing possible starvation in the Gaza Strip in the coming weeks is the largest share of a population at risk of famine identified anywhere since a United Nations-affiliated panel created the current global food-insecurity assessment 20 years ago.”

As a part of its ruling in the Genocide Convention case brought before it by South Africa this month, the International Court of Justice ordered Israel to “take all measures within its power to prevent” acts including “deliberately inflicting on the group conditions of life calculated to bring about its physical destruction in whole or in part.” The Court further ordered Israel to take “immediate and effective measures to enable the provision of urgently needed basic services and humanitarian assistance to address the adverse conditions of life faced by Palestinians in the Gaza Strip.”

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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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