US Sanctions Losing Power, Impact, Study Finds

U.S. economic sanctions are on a path toward losing power and impact, potentially undercutting a variety of tools used in U.S. foreign policy, according to a study published April 29 by the Center for a New American Security. The study, “Economic Dominance, Financial Technology, and the Future of U.S. Economic Coercion,” examines the current state of U.S. economic sanctions and makes several predictions, portraying a muddy outlook for the future of U.S. sanctioning tools. “If policymakers want to be able to continue deploying coercive economic tools effectively … they must ... get ahead of trends that could, if left unchecked, weaken some of the most important tools of U.S. foreign policy,” the study said.

Among the most important trends, the study found, are the increasing number of alternative methods being developed by U.S. allies to avoid “U.S.-dominated financial and economic networks” in which U.S. has imposed sanctions. Speaking during a panel to discuss the study, several of the authors, including keynote speaker and former Treasury secretary Jacob Lew, pointed to “special purpose vehicles” being used to evade U.S. sanctions. In January, the United Kingdom, France and Germany announced the creation of the Instrument for Supporting Trade Exchanges, or INSTEX, designed to allow European countries to trade with Iran despite U.S. sanctions. “When your closest allies need to tell your adversary, Iran, that we’re coming up with a structure where we can do business with you, that’s not a good sign,” Lew said.

David Cohen, one of the study’s advisers and a former deputy director of the Central Intelligence Agency, pointed to the U.S’s recent decision to end waiver exemptions for U.S.-imposed sanctions on Iran as a another opportunity for major countries to evade U.S. rules (see 1904220021). Cohen said the major countries affected by the policy change -- China, Japan, South Korea, Turkey and India -- may not agree with U.S. policy and will look to “find ways to frustrate” U.S. efforts. Cohen theorized that those countries might use another country’s financial system, such as the Bank of China, to purchase Iranian oil. “Are you really going to cut off the Bank of China?” Cohen said during the panel.

While the study said the power of U.S. sanctions is expected to “retain force over the next decade,” alternative “economic and financial channels” could “allow countries, companies, and entities targeted by U.S. coercive economic measures to partly blunt the measures’ impact.” In other cases, countries might simply begin to not recognize U.S. sanctions, said Adam Szubin, a former Treasury secretary and co-chair of CNAS’s task force on the future of U.S. sanctions. “I think there’s a reckoning coming,” Szubin said, specifically mentioning China, which for years has said it does not “accept the legitimacy of unilateral sanctions,” sanctions the U.S. frequently uses. Szubin said China views sanctions as legitimate only “under the umbrella of a U.N Security Council agreement” where China has veto power. “They may [agree] to it in practice, but they don't recognize the legitimacy of it,” Szubin said.