Sanctions Watch Report — May 2023

Michael Galant, CEPR, May 31, 2023 —

In this edition of Sanctions Watch, covering May 2023:

  • Local civil society leaders call for the release of central bank assets to Afghanistan;
  • Members of Congress urge Biden to address migration by easing sanctions on Cuba and Venezuela;
  • Five years since Trump’s withdrawal from nuclear deal, scholars say “maximum pressure” on Iran has failed;
  • US and South Korea hold largest ever live-fire exercises and announce new sanctions for cyber operations in North Korea;
  • G7 announces expansion of sanctions against Russia; Proposed sanctions bill would increase hurdles to humanitarian aid for Syria;
  • In move denounced as “theft,” US allows the sale of Venezuelan state assets;
  • New report finds that economic sanctions contribute to increased mortality, poverty and inequality in sanctions-targeted countries, 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.

The United Nations hosted a closed-door summit of international leaders in Doha this month in an attempt to reach a shared understanding of how best to engage with the Taliban government on issues of international concern. There were no public, concrete outcomes. In advance of the meeting, leaders of Afghan humanitarian, human rights, and peace groups sent a statement to Secretary-General Guterres outlining their hopes for “a principled, pragmatic, and phased approach to engagement,” including the lifting of sanctions and the release of central bank assets. The Economist made a similar call for modest engagement, including pressing banks to “end the informal ban on dealing with Afghanistan” and releasing some of the frozen reserves, noting: “Isolating the Taliban will not help Afghan women. It will not topple or even destabilise the regime, which is in firm control. It will only boost its hardliners.”

In the meantime, the economic and humanitarian crisis continues. UNICEF warned this month that “875,000 children in Afghanistan will suffer from life-threatening acute malnutrition this year.” Widespread hunger has been exacerbated by a swarm of locusts that could wipe out a quarter of the country’s wheat crop. The New York Times reports that thousands of Afghans, like others fleeing sanctions-induced economic deprivation in Cuba and Venezuela, have now made the perilous trek through the Darién Gap in an attempt to reach the US border.

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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.

Title 42 — the controversial pandemic-era power used by Presidents Trump and Biden to expel migrants seeking asylum at the US-Mexico border — expired this month, sparking a renewed discussion about US migration policy. Representatives Veronica Escobar (D-TX) and Raúl Grijalva (D-AZ), both of whom represent border districts, led over 20 members of Congress in a letter to President Biden suggesting one way to address the challenge: end the economic sanctions driving economic crises in Cuba and Venezuela that push people to leave their homes in the first place.

In an interview on MSNBC, Representative Ro Khanna (D-CA), who was among the signers, reiterated the point: “Look at what’s causing people to flee Venezuela and Cuba … the Republicans are saying let’s sanction them more. That’s causing more people to actually leave!” Among those who echoed calls to ease sanctions and stop creating conditions that lead to migration were Representative Greg Casar (D-TX), senior Obama administration officials Ben Rhodes and Tommy Vietor, journalist Peter Beinart, and Mexican president Andrés Manuel López Obrador. Senator Bob Menendez of New Jersey wrote a response to the Escobar-Grijalva letter, claiming that sanctions do not significantly contribute to economic hardship in Cuba and Venezuela. Menendez presented no evidence for his claim, which directly contradicts the overwhelming academic consensus on the subject.

Separately, following demonstrations by constituents, House Rules Committee Chair and Tom Lantos Human Rights Commission Co-Chair Representative Jim McGovern (D-MA) called repeatedly for easing sanctions on Cuba, including in an interview where he described US policy toward Cuba as “an embarrassment and a miserable failure”; a speech on the House floor where he noted that the United States is contributing to the suffering of the Cuban people “every single day, every single hour”; and in an op-ed with former senator Patrick Leahy (D-VT) urging Biden to remove Cuba from the State Sponsors of Terrorism list.

Finally, the Washington, DC City Council unanimously passed a resolution calling to end the embargo on Cuba, and thousands of Cuban entrepreneurs, representatives of cooperatives, and independent workers sent a letter to the Biden administration urging loosening sanctions to support Cuba’s private sector. Meanwhile, the economic crisis in Cuba shows no sign of abating.

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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.

May 11 marked five years since the Trump administration unilaterally withdrew from the Iran nuclear deal and reimposed economic sanctions that had been partially lifted under the agreement, prompting reflections on the impacts of the Trump administration’s “maximum pressure” campaign and its continuation into the Biden era. Scholars hosted by the National Iranian American Council, for example, noted that economic sanctions “place an overwhelming pressure on everyday people,” while “[empowering] the most militant factions in the government.” A forthcoming report corroborates these claims, finding that sanctions that were purportedly intended to target elites dramatically reduced spending across classes. These hardships are being felt particularly acutely today, as millions of Iranians struggle with an inflation crisis. After months of delay, the Iranian government released official figures for last year’s inflation rate, which was 45.8 percent.

Despite the widespread suffering of the Iranian people, US House lawmakers introduced a bill to permanently authorize the Iran Sanctions Act — a 1996 law that gives the president authority to impose certain energy-sector-related sanctions that has, until now, required periodic congressional reapproval. The Biden administration, meanwhile, announced new sanctions against Iranian shipping companies allegedly involved in selling weapons to Russia — a move in step with the G7’s tightening of sanctions against Russia. The European Union also imposed new sanctions against seven Iranian individuals and entities for their alleged involvement in repressing protesters.

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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.

In late April, the United States and South Korea announced a new set of principles for greater military and nuclear collaboration, dubbed the “Washington Declaration.” In a flurry of May meetings, the South Korean government also announced enhanced military cooperation and sanctions enforcement with Japan, Canada, and the European Union. Soon thereafter, the United States and South Korea conducted their biggest live-fire military drills ever, near the North Korean border. The North Korean government has long viewed these military exercises, along with economic sanctions, as a threat, a provocation, and a justification for its nuclear build-up.

Also this month, the US and South Korea announced new sanctions against individuals and entities allegedly involved in cyber operations to help generate revenue for the North Korean government.

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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.

Following their meeting in Hiroshima this month, the G7 countries announced a raft of new sanctions against Russia, targeting “exports of industrial machinery, tools, and other technology that Russia uses to rebuild its war machine,” trade in metals and diamonds, and more. The United States announced sanctions on over 300 individuals and entities, and sectoral sanctions on engineering, architecture, and construction. According to some reports, restrictions on items that could potentially be used to aid the military are now so tight that they could include items used in daily life such as clothes dryers, snowplows, milking machines, and even sunglasses.

The European Union is deep into negotiations to develop its 11th sanctions package. The latest round is expected to expand the use of sanctions against third parties alleged to be helping Russia circumvent sanctions, particularly companies in China, Turkey, and the United Arab Emirates. While a deal is expected soon, some, including Germany, are concerned about the potential geopolitical and economic repercussions of targeting Chinese entities, and Greece and Hungary are reportedly holding off support for the package unless certain of their own companies are removed from the Ukrainian government’s list of “war sponsors.” Another proposal — to ban Russian pipeline gas should the Russian government choose to reopen the taps — did not make it into the package.

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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 Arab League voted to readmit Syria this month, continuing the region’s recent trend toward normalizing relations with Syrian president Bashar al-Assad. The Biden administration reiterated its opposition to normalization, and extended, for another year, the “national emergency” declaration that provides the pretext for its sanctions. Members of Congress introduced a bill doubling down on the existing approach to US-Syria relations. Titled the “Assad Regime Anti-Normalization Act,” the legislation would prohibit recognition of the Assad government and would tighten already expansive sanctions on Syria, including by making it more difficult to provide humanitarian aid to Syrian civilians.

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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.

In advance of the expiration of Title 42 authority, over 20 congressional Democrats called on the Biden administration to help address the influx of migrants at US borders by easing sanctions on Venezuela and Cuba. US sanctions, the signers argued, are a major cause of suffering for the Cuban and Venezuelan people, and therefore of migration from those countries. (See the Cuba section above for more details, as well as reactions from members of Congress, former top US officials, and others.)

Also this month, the Biden administration granted the US-backed opposition access to Venezuela’s US bank accounts, which contain $347 million in state funds. Since 2019, the funds had been controlled by Juan Guaidó, who had relied on them to finance opposition operations.   The US had initially blocked all access to the accounts when, earlier this year, US-backed opposition groups ceased recognizing Guaidó as president. Along with this access, the Treasury Department authorized the group to settle sovereign debt agreements, and the Justice Department announced that it would no longer block the sale of Citgo shares to satisfy creditors. Citgo is a US-based subsidiary of Venezuela’s state oil company, and has also been under the control of the US-backed opposition since 2019. A US court had previously ordered the sale of Citgo shares to compensate creditors, but these sales were blocked by sanctions. The Venezuelan government denounced the moves as the “looting” of state property and the “theft of the century.”

The US has paved the way for the UN to begin administering a $3 billion fund for Venezuelan humanitarian relief, financed by seized state assets. The Maduro government has long contested the seizure of billions of dollars worth of public assets as illegitimate, but after years of economic pressure, it ultimately agreed to the UN-administered fund in November. The Biden administration made it possible for the UN to administer the funds by committing to shielding them from Venezuela’s creditors.

Finally, Presidents Lula da Silva of Brazil, Alberto Fernández of Argentina, and Gabriel Boric of Chile called for the US to lift sanctions against Venezuela during press conferences on the sidelines of a summit of South American leaders in Brasilia.

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In a landmark new CEPR report, economist Francisco Rodríguez takes a comprehensive look at the evidence on how economic sanctions affect the populations of targeted countries. Reviewing the available econometric literature, Rodríguez shows that there is near-total academic consensus that economic sanctions profoundly, and mostly, harm everyday people in the countries targeted:

  • Thirty out of 32 academic studies find that broad-based or sectoral sanctions have a substantial and statistically significant negative impact on measures of well-being, such as per capita income, poverty, inequality, mortality, and human rights.
  • One study associated sanctions episodes with an average decline in per capita GDP of 26 percent — roughly the magnitude of the Great Depression.
  • Other studies associated sanctions with a 1.4 year decrease in women’s life expectancy — comparable to the global decline in life expectancy from the COVID-19 pandemic — and a 2.5 percent increase in rates of HIV infection among children.

Taking a closer look at three country case studies, Rodríguez finds:

  • Sanctions on Iran significantly reduced oil revenues, leading to import cuts and scarcity of essential goods for everyday Iranians.
  • Sanctions on Afghanistan have blocked access to international funds vital for the functioning of the Afghan economy, contributing to an escalating humanitarian crisis.
  • Sanctions on Venezuela drove a collapse in oil revenues, contributing to the largest peacetime economic contraction in modern history.

Rodríguez presented these findings in a congressional briefing, alongside leading sanctions experts Joy Gordon, Raúl Rodríguez, and Mark Weisbrot. Assessing a wide range of evidence, the panelists were unanimous in their findings that economic sanctions, even when touted as targeted, often have widespread deleterious effects on national economies, and therefore severely harm millions of people.

Finally, the Treasury Department announced two hires for its newly established Sanctions Economic Analysis Unit: chief sanctions economist Rachel Lyngaas, previously of the International Monetary Fund, and deputy Leena Bhatnagar of Treasury. The Unit’s creation, first announced in September, has been met with both praise — as a long-overdue effort to understand the “collateral” impact of sanctions — and some skepticism, by those who suggest it could be an attempt to mitigate economic blowback on the United States and its allies without addressing the profound harm to civilians in targeted countries.

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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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