CEPR Sanctions Watch, July 2022

08/03/2022 11:18am

Economic sanctions have become one of the main tools of US foreign policy, despite little proof of their efficacy, and widespread evidence that they often cause harm, and deaths, among civilian populations; and that these civilian impacts may be a large part of how sanctions are intended to achieve political goals. 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 help generate more awareness around sanctions by providing regular updates on US economic sanctions policy and its harmful impacts on people around the world. Click here to subscribe

Afghanistan
Cuba
Iran
North Korea
Russia
Venezuela
Other

Afghanistan

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. Along with sanctions on Taliban officials and a cutoff of aid, this has contributed to a collapse of Afghanistan’s economy.

Note: the killing of Ayman al-Zawahri, which occurred after the following was written, is likely to complicate prospects for negotiations.

US and Afghan negotiators reportedly held productive talks toward the release of half of the Afghan central bank’s $7 billion in frozen foreign reserves in US financial institutions this month. That deliberations are ongoing is an encouraging sign, but the parties remain far from an agreement. The US delegation proposed a mechanism by which the assets would be placed in a third-party trust fund that would disburse the reserves at the discretion of an international board. However, the Afghan government, while reportedly open to independent monitoring against money laundering, insists against ceding control to a third party. This position is understandable. As CEPR’s Andrés Arauz explains, allowing the reserves to be controlled, and potentially cut off, by a third party would undermine the value of the international reserves as reserves, and therefore compromise the ability of the central bank to fulfill its essential functions.

Until an agreement is reached, however, Afghanistan’s economy continues to crumble. The Wall Street Journal reports that US sanctions, beyond the frozen foreign reserves, are exacerbating the situation:

“Foreign companies and banks are widely avoiding transactions with Afghanistan for fear of running afoul of international sanctions that target the Taliban leadership.”

To make matters worse, the version of the FY 2023 National Defense Authorization Act that passed the House this month included language that would bar the use of Pentagon resources for the transfer of aid, currency, or other items of value to Afghanistan (despite the last minute efforts of Rep. Ilhan Omar). If this language remains in the final legislation, it would significantly hamper humanitarian relief efforts, and potentially even the eventual transfer of the foreign reserves.

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Cuba

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

Over three quarters of House Democrats voted this month in support of legislation that would make it easier for US producers to export food to Cuba. Led by Rep. Rashida Tlaib, the amendment to the housing, transportation, and urban development appropriations bill would have suspended certain restrictions on food exports as Cuba faces what may be its worst economic crisis in decades. Yet despite support from US farmers — and the fact that nearly 70 percent of Cuban-Americans in Miami support selling food to the island — 55 Democrats joined nearly every Republican in voting down the measure. 

Also this month, the Biden administration announced new visa restrictions on certain Cuban officials, and, on the other hand, gave American Airlines permission to resume flights to certain destinations in Cuba outside of Havana. The city of New Haven approved a resolution condemning the embargo, following a similar resolution in Boston the month before.

Cubans are facing widespread blackouts amid the sweltering summer heat, as the island’s weeks-long energy crisis continues. The US embargo makes it more difficult to access the parts needed to maintain a working energy grid, as well as to afford fuel amid global energy price increases driven, in part, by the war in Ukraine and by economic restrictions imposed on Russia.

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Iran

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 US’s withdrawal.

Negotiations for a return to the nuclear deal, and hopes for the easing of sanctions and a return to a less hostile relationship between the United States and Iran, remain at an impasse. One of the major remaining sticking points is, reportedly, the US refusal to remove Iran’s Islamic Revolutionary Guard Corps (IRGC) from its “foreign terrorist organization” list, a Trump-era policy that Secretary of State Blinken admits means little: “As a practical matter, the designation does not really gain you much.” Despite this, President Biden explicitly said in an interview this month that he would be willing to let the agreement die altogether to maintain the designation (in the same interview, he refused to take military action off the table).

Amid the faltering talks, the Biden administration announced a fresh round of primary and secondary sanctions on individuals and firms from Iran, the United Arab Emirates, Hong Kong, and China for allegedly facilitating the sale of Iranian oil and oil products — a crackdown on oil exports at a time when much of the world, including US citizens, are feeling the pain of high oil prices. Iran responded with its own sanctions on dozens of former and current US officials — including John Bolton, Mike Pompeo, and 30 current members of Congress — for their alleged support of the opposition group Mujahedin-e-Khalq (MEK), which the Iranian government considers a terrorist organization (as did the US State Department, from 1997 to 2012).

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North Korea

The US 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. Sanctions now target oil imports, and cover most finance and trade and the key minerals sector.

The 69th anniversary of the Korean Armistice Agreement was met by activist calls for a peaceful end to the (technically ongoing) Korean War, as well as warnings from the North Korean government against what it sees as provocative joint military exercises between the United States and South Korea. Tensions remain high as US officials continue to caution that North Korea may be planning its seventh-ever nuclear test. Secretary of the Treasury Janet Yellen warned that the United States is prepared to impose fresh sanctions should the test occur.

Between existing sanctions and the continued fallout of COVID-19, new estimates released by the Bank of Korea this month report that the North Korean economy shrank for the second straight year in 2021. Despite this, and the country’s difficulty in accessing medical goods, the COVID-19 outbreak that was first announced in May has reportedly subsided, with the government claiming that “99.98 percent of its 4.77 million fever patients have fully recovered.” The World Health Organization, however, has previously expressed doubts about the data.

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Russia

US sanctions on Russia’s financial, energy, and defense sectors began after the 2014 annexation of Crimea. This regime was greatly expanded, particularly by the US, UK, and EU, in response to the 2022 invasion of Ukraine, by barring most financial transactions, oil and gas imports, and other activities.

The United States and its allies continued to attempt to navigate the tensions of economically isolating a major world power and oil and gas supplier this month. The United Kingdom announced a fresh wave of sanctions on Russian officials, while the European Union approved its seventh major sanctions package, including, among other things, an extended prohibition on the purchase of gold originating in Russia. Canada, meanwhile, was forced to waive its sanctions to allow the transportation of equipment needed to ease Germany’s gas shortage. Later in the month, Russia announced that it would be cutting gas exports to Germany, sending already-high prices soaring. (Read CEPR’s Kevin Cashman for more on how US sanctions on Russia and beyond have affected the global economy, and have undermined Biden’s domestic agenda.)

Reports on the impacts of these sanctions remain conflicting. While one new study finds that Russia faces “economic oblivion,” other assessments are more moderate. The International Monetary Fund, while warning of a global recession, revised Russia’s economic outlook upward. Critically, while discussion has focused on whether sanctions bring pain to the Russian economy, too little attention is paid to whether they succeed in actually achieving their goals (much less how this pain affects the Russian people, and nations around the world). According to Alexander Gabuev, a senior analyst at the Carnegie Moscow think tank: Russia will “definitely” face recession, but “does [sanctions policy] change the Kremlin’s calculus and create sufficient pressure for Russia to change its Ukraine policy? No.”

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Venezuela

While the George W. Bush and Obama administrations sanctioned certain Venezuelan individuals, it was under Trump that these were dramatically expanded to target the entire economy, barring financing and oil trade, and transferring control of assets to the opposition. President Biden has yet to reverse these measures.

A US delegation to Venezuela failed to secure the release of detained US citizens, but did, reportedly, yield productive talks. Though limited, this continued engagement with the Venezuelan government is a hopeful sign, following the initiation of diplomatic talks earlier this year. Previous talks led, among other things, to the Biden administration green-lighting oil giant Chevron’s plans to negotiate a future contract with the government. These negotiations continued this month, with reports that an agreement may give Chevron a majority stake in production, which would lower the Venezuelan state oil company’s stake below the 50 percent threshold that allows exports to proceed without facing sanctions. 

Also this month, the heads of government of the Caribbean Community called on the United States to end its sanctions on Venezuela, particularly given rising global oil prices.

Venezuela’s economy is expected to grow at its fastest rate in 15 years this year as a result of these high oil prices, recovering oil production, and growing remittances — a welcome if insufficient reprieve for a country that has been battered by sanctions for years. A new AP analysis finds that Venezuela’s vaccination rate — not only for COVID-19, but also essential infant vaccinations against polio, measles, tuberculosis, and other diseases — is among the worst in the world.

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Other 

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

The version of the FY 2023 National Defense Authorization Act that passed the House this month includes an amendment led by Reps. Chuy García and Ilhan Omar that would require a report on the humanitarian impacts of US sanctions. Despite being a major component of US foreign policy-making, the United States does not provide Congress or the general public with an official assessment of the effectiveness, or impacts, of its sanctions policy. If included in the final legislation, this report would be a small but meaningful step toward effective oversight of US sanctions policy.

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