Sanctions Watch Report

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Michael Galant, CEPR Sanctions Watch, January 31, 2023 — In this Sanctions Watch, covering January 2023: freezing temperatures and sanctions-fueled crisis kill 100+ in Afghanistan; 160 lawyers call to remove Cuba from “State Sponsor of Terror” list; US, UK, and EU impose new sanctions on Iran as protests subside; former top DOD expert calls for new approach and sanctions relief for North Korea; US and allies debate details of upcoming Russian oil price caps; Rep. McGovern calls on Biden for “as much relief as possible from the sectoral and secondary sanctions” that Trump imposed on Venezuela; and more.

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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. 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 asset seizure has contributed to a collapse of Afghanistan’s economy.

At least 124 people have died as winter temperatures set in across Afghanistan, compounding what was already a dire humanitarian crisis. The freezing temperatures — in some regions dropping more than 30 degrees below zero — have also killed tens of thousands of livestock and forced many to spend their meager income on heating rather than food, in a country where nearly 20 million people already face acute food insecurity. Relief from this crisis may be in short supply, as many international aid organizations have suspended operations following the Taliban’s decision to prohibit women from attending schools or working for nongovernmental groups. In some cases, the international groups were actively reacting to the unjust ban, and in others it was due to the simple reality of losing the women workers on which these groups rely. In either case, Afghan women now face a double tragedy from the ban itself and a loss of humanitarian relief.

The Taliban, in turn, has blamed sanctions for their decision to reverse their promises and crack down on women’s rights: “Afghanistan has been sanctioned, the banking system has been sanctioned, and our businessmen are facing serious difficulties. They can’t even transfer money abroad to import food and fuel,” said Afghan foreign minister Amir Khan Muttaqi. “What action has the UN taken that I can pass on to my leaders and people?” These comments may provide insight into some of the political calculus involved in the Taliban’s horrific and inexcusable repression of women; rather than disincentivizing human rights abuses, sanctions and economic isolation may be contributing to an escalatory cycle and a further deterioration of human rights.

Finally, in a recent report, Human Rights Watch outlined the limits of the still-inert Afghan Fund and the necessity of returning Afghanistan’s frozen assets to its central bank (Da Afghanistan Bank, DAB): “several essential central banking services can still only be carried out by DAB, and economic impacts will continue until the US reaches an agreement with Taliban authorities about DAB’s status. Serious concerns remained about the Afghan Fund’s viability as a longer-term approach to address Afghanistan’s economic problems, and the delay in taking steps to stabilize the collapsed economy came at a steep human cost.”

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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.

Hundreds of Cuban migrants arrived in southern Florida by boat this month — the latest surge in what has been a months-long wave of mass migration from the island, driven in large part by the economic effects of the embargo. The turn to increased migration by sea may in part be a response to President Biden’s announcement of additional restrictions at the southern border, including the expansion of the use of the controversial Title 42 authority for deportation that was widely condemned when used by President Trump. Congressional progressives Reps. Jayapal and García criticized the move, arguing that rather than suppressing immigration, the Biden administration should address its root causes by reversing Trump-era “maximum pressure” policies, normalizing relations, and lifting economic sanctions.

While Biden has taken a few measures to reverse elements of Trump’s Cuba policy — including reopening visa and consular services at the US embassy in Cuba this month — some argue that Biden now has a favorable window for more transformative action following the midterm elections and before the start of presidential campaigning season. Perhaps anticipating further policy reversals, three GOP senators called on Biden to maintain the Trump administration’s controversial policy of listing Cuba as a “State Sponsor of Terror.” Soon afterward, 160 lawyers sent a letter urging the opposite, arguing that “there is no legal or moral justification” for Cuba to be on the list. Senator Ron Wyden, meanwhile, followed a recent fact-finding trip to Cuba with calls to normalize trade relations and reduce certain financial restrictions on Cuba’s small and medium enterprises. Finally, at the summit of the Community of Latin American and Caribbean States, leaders of 33 countries condemned the continued embargo.

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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 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. The European Union also maintains certain trade and financial sector sanctions on Iran.

Partly in response to the repression of protests in Iran, the United States, the United Kingdom, and the European Union each imposed a fresh round of sanctions on Iran in January. At the start of the month, the Biden administration sanctioned individuals in Iran’s defense industry for their role in producing drones for Russia’s use in Ukraine. Two weeks later, the US imposed new sanctions on individuals allegedly connected to Iran’s Islamic Revolutionary Guard Corps (IRGC), the ninth such package since the start of Iran’s recent protest movement. The UK and EU announced their own, similar measures at the same time. While the European Parliament passed a nonbinding resolution to place the IRGC on a designated terrorist list, the new sanctions did not include such a designation, which would first require a court decision by an EU member state. It’s worth noting that Iran’s protests had subsided well before these measures were enacted, following a major government crackdown in which protesters have been executed. There is no indication that the sanctions-heavy response of the US and its allies has encouraged reform or prevented human rights abuses.

New and existing sanctions have, however, contributed to Iran’s current economic woes, which in turn helped to fuel the massive protests that took place late last year. Iran’s currency, the rial, hit an all-time low this month. Previous bouts of sanctions-induced depreciation in years past are known to have dramatically impacted the lives of Iranian civilians; bread, meat, rice, and other everyday necessities became unaffordable, while hospitals lost access to the medicines and foreign-based health services on which they depend. As former US ambassador to the UN and under secretary of state Thomas Pickering said during a similar period in 2012: “We issue licenses for sales of food and medicine to Iran, but it is not legal for them to pay for it.”

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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, more stringent sanctions were added, which have periodically intensified since. 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 and its own.

While not yet reaching the dizzying pace of December’s tit-for-tat escalatory spiral, the new year began with a continuation of tensions between North Korea on the one hand, and South Korea, the United States, and Japan on the other. Following a record year of weapons tests, the Kim government began 2023 with another missile launch and a call for an “exponential” expansion of its nuclear arsenal. The US and South Korean governments, for their part, have reportedly begun planning joint military exercises using US nuclear assets, and — for the first time in decades — South Korea’s president warned that South Korea is considering pursuing its own development of nuclear weapons, worrying denuclearization advocates.

In a recent Foreign Affairs article, US Institute of Peace senior expert and former Department of Defense senior advisor on North Korea Frank Aum argues this escalating risk of nuclear war underscores the failure of decades of “pressure”-oriented policy toward North Korea. “Thirty years of empirical evidence indicates that although pressure may inflict pain on North Korea,” Aum claims, “it does not engender positive behavior.” Instead, Aum argues that success will only come from engagement, including an initial, unilateral demonstration of good faith by the United States — such as the lifting of certain sanctions.

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Russia

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.

Two months following the implementation of the landmark crude oil price cap by the G7, EU, and Australia, the plan appears to be functioning as its proponents predicted. Russian crude is now trading 48 percent below the international benchmark, eating into Russian profit without contributing to further energy price inflation in the US and EU. However, for the moment, Russian spending remains strong, bolstered by renminbi reserves and a record current account surplus in 2022. Russia also appears to be developing its capacity to avoid sanctions and reach alternative markets. While sanctions are seemingly reducing Russian revenue, there is little understanding of whether this translates into increased prospects for peace, or how these and other sanctions will affect Russian civilians. At a recent meeting of the World Economic Forum in Davos, former IMF chief economist Kenneth Rogoff claimed that the Russian people will face “incredible poverty.”

The US, EU, Canada, Japan, and the UK are deliberating over the next major set of price caps — this time on refined oil products of varying qualities — set to take effect February 5. On the same day, Europe will implement its long-planned ban on Russian refined oil products, supplementing the crude oil import ban that came into effect in December. In a largely redundant retaliatory move, the Russian government announced that it would prohibit the sale of crude oil to any country involved in the price cap program beginning February 1, and of refined oil products beginning at an unspecified later date. The United States also imposed fresh sanctions against Russia-based private military company the Wagner Group.

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Venezuela

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 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.

President Biden announced stringent new restrictions on Venezuelans arriving at the southern border this month, along with similar measures on migrants from Cuba, Haiti, and Nicaragua. The controversial move comes amid a continued migration crisis driven by Venezuela’s acute economic difficulties. According to oil market expert Matthew Smith, while Biden recently authorized Chevron to restart limited activities in the country, Venezuela remains significantly constrained in its ability to rebuild its crumbling oil infrastructure and kickstart oil production. Without significant additional sanctions relief, “Venezuela’s vast oil wealth could become the world’s largest stranded asset,” threatening Venezuela’s economic recovery, the well-being of its people, and even its environment.

Late in the month, the US Treasury Department announced that it will grant Trinidad and Tobago a license to develop a Venezuelan gas field. The exact details of the plan are not yet clear, but there is speculation that Venezuela will receive food and medicine in exchange for the gas, as the administration has said that it will not allow Venezuela to be paid in cash for the extraction of its natural resources. Meanwhile, US Representative and ranking Democrat of the powerful House Rules Committee, Jim McGovern, sent a letter to President Biden that addressed US sanctions on Venezuela, which have resulted in an estimated tens of thousands of deaths.

“I last wrote to you directly about Venezuela in May of 2021. As a Member of Congress who strongly defends placing human rights at the center of U.S. foreign policy, I drew your attention to the indiscriminate and counterproductive impact on the Venezuelan people of the secondary and sectoral sanctions imposed by the Trump Administration. I urged you to change course and lift the sanctions imposed by your predecessor because it is immoral for the United States to use the well-being of the Venezuelan people as a bargaining chip in the pursuit of foreign policy goals.”

In this January 19th letter, McGovern did not directly call for the lifting of the Trump sanctions, which are still in place. He called for the Biden administration to “further increase assistance to address Venezuela’s humanitarian crisis.” And he concluded: “In the end, I continue to believe that the most important thing your administration can do to reduce the massive humanitarian crisis and empower the Venezuelan people going forward is to provide as much relief as possible from the sectoral and secondary sanctions imposed as part of Trump’s egregiously wrong “maximum pressure” campaign.”

Finally, in an article published by CEPR this month, economist Francisco Rodríguez and CEPR Senior Associate Michael Galant trace these economic woes to the sanctions imposed by the Trump administration, responding to a recent report by the IMF that omitted their decisive role. [That an otherwise valuable report would fail to consider the impact of US sanctions is likely due to the United States’ outsized influence at the Fund.]

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Other

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

US Treasury officials are reportedly in the midst of a new initiative to meet with major banks and technology companies in order to personally discourage sanctions “overcompliance.” It is widely understood that the fear of running afoul of sanctions, as well as the costs associated with navigating the often labyrinthine restrictions, leads many businesses and financial institutions to alter their behavior and limit their engagement with sanctioned countries or entities well beyond the letter of the law. This overcompliance can have significant harmful effects, broadening the impact of even “targeted” sanctions, to the detriment of civilians and legitimate business. The move indicates that the Biden administration is aware of these knock-on effects — but it remains to be seen whether Treasury’s one-off meetings with individual businesses will lead to a significant reduction in overcompliance.

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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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