CEPR Sanctions Watch, September–October 2022

11/08/2022 10:40am

Economic sanctions have become one of the main tools of US foreign policy despite little proof of their efficacy, and 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 — including, in some cases, mass fatalities — receive relatively little attention in most US media outlets.

CEPR Sanctions Watch aims to help generate more awareness by providing regular updates on US sanctions policy and its harmful impacts on people around the world. Click here to subscribe

This edition of Sanctions Watch has updates on sanctions and their impact in Afghanistan, Cuba, Iran, North Korea, Russia, and Venezuela, plus other general news and commentary from the months of September and October, 2022.

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. Around $2 billion in additional reserves have 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.

On September 14, the Biden administration announced that it will be transferring $3.5 billion of the frozen Afghan central bank reserves to an account at the Bank of International Settlements — an international organization of central banks — under the ownership of a newly established “Afghan Fund.” The Fund will be managed by a Board of Trustees composed of two Afghan economists, Drs. Anwar-ul-haq Ahady and Shah Mehrabi, as well as a US and a Swiss government representative. According to the administration’s announcement, the Board will “have the ability to authorize targeted disbursements to promote monetary and macroeconomic stability and benefit the Afghan people,” including by paying for imports and paying arrears at international financial institutions. The administration also suggested that the reserves could return to the central bank in the long term, provided certain conditions of (1) independence, (2) anti-money laundering and countering-the-financing-of-terrorism (AML/CFT) controls, and (3) third-party monitoring, are met.

Much of the media and many groups responded positively to this announcement, though CEPR’s Mark Weisbrot pointed out to The Washington Post that “[t]his move can’t possibly compensate for the harm to the Afghan economy and millions of people who are starving, in large part because of the US confiscation of Afghanistan’s central bank reserves.” In his response to the news, CEPR Senior Research Fellow Andrés Arauz called into question the legitimacy of freezing another country’s central bank’s reserves and transferring them to an foreign institution unaccountable to Afghanistan’s people. The Congressional Progressive Caucus welcomed the move as a positive step forward, but reiterated that “the full $7 billion that rightfully belongs to the Afghan people should be restored to the Central Bank to combat the collapse of the Afghan economy and restore financial stability.”

Read more:

Cuba

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.

The entire island of Cuba was left without power — in some cases for days — following the devastation of Hurricane Ian late last month. The storm came on top of what was already a months-long energy crisis. While the Biden administration has since pledged $2 million in much-needed emergency relief funding, it had only weeks prior extended the application of the Trading With the Enemy Act, recommitting to the embargo that, in all likelihood, contributes greatly to the island’s energy challenges. Senior Cuban diplomat Carlos Fernandez de Cossio condemned the prolongation of the embargo — and, in particular, the Biden administration’s decision to maintain Cuba’s Trump-era designation as a “State Sponsor of Terrorism” — as illegitimate, unsustainable and immoral.” Recent interviews reveal that some top former US national intelligence officers from both Democratic and Republican administrations in part agree, calling the State Sponsor of Terrorism designation “bogus” and “a fiction that we have created … to reinforce the rationale for the blockade.”

At the plenary sessions this month marking the start of the 77th United Nations General Assembly, numerous world leaders used their time at the podium to decry the embargo. South African foreign minister Naledi Pandor, for example, called “for an end to the embargo against Cuba, which continues to impede the right to development of her people.” Similar condemnations were made by the representatives from Argentina, Barbados, Bolivia, China, Equatorial Guinea, Jamaica, Saint Vincent and the Grenadines, Trinidad and Tobago, and many more. 

Read more:

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 United States’ withdrawal. The European Union also maintains certain trade and financial sector sanctions on Iran.

As protests continue to sweep Iran in response to Mahsa Amini’s death last month at the hands of the “morality police,” the Biden administration has announced a series of new sanctions against senior security organization leaders, prison officials, Islamic Revolutionary Guard Corps commanders, and the morality police itself. While these are billed as supporting civil society in their demands for liberal reforms, there is evidence that, historically, sanctions have, whatever their intent, done the opposite. The Trump administration’s unilateral withdrawal from the Iran nuclear agreement and imposition of “maximum pressure” sanctions appears to have played a major role in undermining the credibility of reformist factions in the Iranian government, and in rallying support for the hardliners that are now in power. Relative to the existing sanctions regime, these latest additions are small and targeted, but there is little evidence to support the underlying logic that the United States can sanction other governments into carrying out democratic and human rights reforms; in fact, such efforts have likely been counterproductive. The United Kingdom and European Union have also recently announced sanctions on certain Iranian military leaders and officials for allegedly supplying Russia with drones for use in its war in Ukraine.

The Biden administration has, on the other hand, loosened Internet-related sanctions, allowing Iranian civilians increased access to social media, video conferencing, and more, purportedly to help the flow of information across civil society. Meanwhile, returning to the Iran nuclear deal, which would entail the reversal of Trump-era “maximum pressure” policies, including the significant lifting of sanctions, has reportedly been deprioritized by the administration. It has not, however, been ruled out entirely.

Read more:

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, more stringent sanctions were added, 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.

Tensions remain high on the Korean peninsula amid the escalation of tit-for-tat actions between North Korea and South Korea, the United States, and Japan. The previous months have seen what Secretary of State Blinken calls “unprecedented” missile testing from North Korea, which the Kim government justifies as a response to provocative military exercises by the United States and its allies. The latter remain concerned that North Korea may soon test a nuclear weapon for the seventh time, which South Korean leadership warned would merit an “unparalleled scale of response.” 

Already, the three nations have imposed a number of new sanctions in the last month: Japan and South Korea have targeted North Korean individuals and organizations thought to be involved in the development of missiles, and the United States has sanctioned companies based in Singapore and Taiwan that are alleged to have violated US sanctions by, among other things, delivering oil to North Korea. Amid these tensions, and disputed reports that North Korea may be supplying Russia with weapons, Sens. Menendez and Hagerty introduced legislation that sets the stage to tighten enforcement and potentially ramp up sanctions if North Korea does not accede to US demands regarding its nuclear weapons programs.

Finally, a new report from a UN Panel of Experts details the ways in which North Korea has sought, sometimes successfully, to evade the sanctions regime. The report also acknowledges that there “can be little doubt” that the sanctions have “unintentionally affected the [DPRK’s] humanitarian situation and the right to development.”

Read more:

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 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 United States imposed new sanctions on Russia in late September for its annexation of breakaway regions of eastern Ukraine. The package targeted hundreds of individuals and companies in Russia, Belarus, and elsewhere, including the governor of the Central Bank of Russia, Elvira Nabiullina. The targeting of Nabiullina, as well as the bank’s deputy governor, could prove particularly consequential, making certain transactions related to Russia’s energy trade more difficult.

New sanctions were also imposed by Canada, Australia, and the European Union. The EU agreed to the new restrictions — its eighth sanctions package against Russia — in early October. A key piece of the package is an agreement on a legal framework for the implementation of the Russian oil price cap previously agreed to by G7 countries. With the EU’s bans on the seaborne imports of crude oil and on the insuring of Russian oil shipping set to go into effect on December 5, the price cap — which would set a price ceiling set slightly above the costs of production for the continued import of Russian oil — is intended to keep the oil flowing and militate against a spike in costs, while still depriving Russia of much of its oil income. While the majority of countries around the world have not agreed to the cap, proponents believe that it will provide countries that are not party to the agreement — for example, China, India, and Turkey — with the leverage needed to demand a deeper discount, thus undercutting Russia’s oil revenue without needing to formally opt in. Skeptics believe that Russia will have little trouble finding alternative buyers: “All it’s going to do is reroute oil … and make life difficult for everyone else,” said former State Department economist Daniel Ahn, “which is what is happening right now anyway.” Details, including the actual price of the caps, have not yet been finalized.

Read more:

Venezuela

While the George W. Bush and Obama administrations sanctioned certain 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. 

The Wall Street Journal reported this month that the Biden administration is considering allowing Chevron to resume oil production in Venezuela in exchange for the resumption of talks between the Maduro government and the opposition ahead of the country’s 2024 presidential elections. The news was met with predictable backlash from Republican lawmakers, confronting the Biden administration with one of the great weaknesses of economic sanctions: they’re politically much easier to impose than to lift, thereby undermining their effectiveness as “incentives.” Senator Murphy of Connecticut recognized the failure of US sanctions on Venezuela in a recent hearing, admitting that the decision to de-recognize the government of Venezuela was a mistake, and that US sanctions contribute to Venezuela’s “humanitarian nightmare.”

If the US administration allows Chevron to resume operations this could help lower global oil prices and improve Venezuela’s economic and humanitarian conditions, which have been devastated by the impact US sanctions have had on the country’s oil production. A new report from economist Francisco Rodríguez found that, among Venezuelan oil firms with access to international credit prior to sanctions, about half of the output drop is attributable to the effects of sanctions, representing a loss of around $6.2 billion a year at current prices. Improving economic conditions could, in turn, help to reduce soaring levels of migration of Venezuelans to the US border. 

Finally, Reuters reports that Venezuela, the United States, and the UN are considering a proposal to release $3 billion in Venezuelan state funds that had been frozen as a result of US sanctions, to be administered by the UN as humanitarian aid. Though additional humanitarian aid would be welcome, some remain concerned about the precedent set by giving the UN control of funds that are rightfully owned by Venezuela.

Read more:

Other 

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

This month, the Biden administration announced far-reaching, extraterritorial controls on the export of semiconductors to China. These restrictions operate through different mechanisms, and under different authorities, than most other sanctions, but are nonetheless coercive unilateral measures designed to limit certain forms of economic activity with another sovereign nation. Some analysts warn that this step is a dramatic and potentially risky escalation in zero-sum economic warfare against the country.

Perhaps presaging the expansion of such a program of economic warfare, the Biden administration is now hiring a “chief sanctions economist,” to head a newly created Sanctions Economic Analysis Unit charged with ensuring that US sanctions achieve their goals with limited unintended consequences. The effects of US sanctions policy have long gone understudied, and the new position is perhaps a sign of growing recognition of the failures of decades of mushrooming sanctions. But while the advertised role refers to the “collateral effects” of sanctions, it makes no explicit mention of the humanitarian impact, perhaps suggesting that the unit may be more concerned with maximizing impact and mitigating blowback than with limiting civilian harm within targeted countries — civilian harm being indivisible from, and often the very intention of, broad economic sanctions. Indeed, coverage of the new position highlighted how poorly thought out sanctions disrupted the global aluminum market in 2018.

In his speech to the UN General Assembly in September, President of Senegal and African Union (AU) Chairman Macky Sall reiterated the AU’s longstanding calls “for the lifting of foreign sanctions against Zimbabwe,” adding that “these harsh measures continue to fuel a sense of injustice against an entire people, and to aggravate their suffering in these times of deep crisis.” Leaders and representatives of South Africa, the Democratic Republic of the Congo, Lesotho, and others spoke out against US sanctions on Zimbabwe at the General Assembly as well.

Read more:

Subscribe to the CEPR Sanctions Watch here

Support Cepr

APOYAR A CEPR

If you value CEPR's work, support us by making a financial contribution.

Si valora el trabajo de CEPR, apóyenos haciendo una contribución financiera.

Donate Apóyanos

Keep up with our latest news