US Sanctions Policy: Too Much Collateral Damage?
Sixty percent of low-income countries have been economically punished by the US, an in-depth report by the Washington Post has claimed.
More than a third of the world’s nations are feeling the adverse effects of some form of US sanctions. Furthermore, the burden has become such that even the bureaucrats in Washington can no longer handle the workload of maintaining such a complex web of economic penalties, the Post claimed.
Economic sanctions were first used against Washington’s adversaries in the 1990s. At that time, its Office of Foreign Assets Control (OFAC) worked from a single conference room, and were primarily responsible for tasks like “blocking American sales of Cuban cigars.”
After the 911 attacks in 2001, the use of sanctions exploded. Currently, sanctions imposed by the US are three times that of any other country. These penalties target “a third of all nations with some kind of financial penalty on people, properties or organizations,” the newspaper noted, including 60% of the world’s low-income countries.
Anonymous sources from the offices of OFAC told the Post that the exponential growth of the sanctions has become essentially unmanageable. As companies seek to avoid criminal charges for sanctions violations, OFAC is deluged with “tens of thousands of requests from the private sector.” In an effort to ensure all violators are punished the Biden administration reportedly outsourced to nonprofits decisions regarding which entities are to be sanctioned.
Demands by OFAC staffers to curb the propensity towards increased sanctions have been rebuffed by Treasury and State department senior management.
“The abuse of this system is ridiculous, but it’s not Treasury or OFAC’s fault,” Caleb McCarry, a former State Department official, told the newspaper. “They want relief from this relentless, never-ending, you-must-sanction-everybody-and-their-sister, sometimes literally, system,” he continued, adding that “it is way, way overused, and it’s become out of control.”
History tells us that US sanctions often fall short of their intended objective. George W. Bush’s sanctions on North Korea did not prevent Pyongyang from developing nuclear capability; Barack Obama’s sanctions on Syria did not remove Bashar al-Assad from power; Donald Trump’s sanctions on Venezuela failed to instigate Nicolas Maduro being toppled and Joe Biden’s sanctions on Russia – numbering more than 6,000 in two years – have failed to cripple the latter’s economy or bring an end to Russia’s military operation in Ukraine.
A country like Russia with a reasonably developed economy has managed to weather the sanctions and still grow its economy. Other nations with much less economic capacity have been less fortunate. Starvation has been an ever-present threat in North Korea since the late 1990s, while Trump’s sanctions on Venezuela precipitated a major economic contraction. And depending upon one’s source, the latter is said to be responsible for the deaths of thousands between 2017 and 2019. (There are not really reliable sources for the latter’s numbers.)
“The mentality, almost a weird reflex, in Washington has just become: If something bad happens, anywhere in the world, the US is going to sanction some people. And that doesn’t make sense,” Ben Rhodes, a former adviser to Barack Obama, told the Washington Post. “We don’t think about the collateral damage of sanctions the same way we think about the collateral damage of war, but we should.”
The merit of sanctions in the face of Russian aggression is not only understandable but likely warranted. But the caveat is when they are so pervasive as to affect innocent countries and their people without producing the desired effect. It is this circumstance that creates problems for the US in its effort to maintain global economic and political hegemony while fostering needed leadership in the world.
After more than two years of escalating sanctions designed to cripple the Russian economy, the war in Ukraine continues apace with human and material costs mounting daily. Moreover, the IMF reports that the Russian economy continues to grow and at a rate faster than expected.
After months of discussions over whether to confiscate Russian assets frozen in the West, G-7 nations decided in mid-June to use the future proceeds of those assets to provide a $50 billion loan to Ukraine. The decision, however, was difficult to reach as the EU felt the bulk of the liability rested with them, and especially on European companies.
But that G-7 decision may leave Western companies still operating in Russia, especially those from Europe footing the bill for funding Ukraine. According to data collected by the Kyiv School of Economics and analyzed by Armin Steinbach, a nonresident fellow at the Brussels-based think tank Bruegel, European Union and U.S. companies have pulled out around 40 percent of their Russian assets since February 2022. Foreign assets worth around $194 billion are still in Russia. Of these assets, $32 billion worth are owned by U.S. companies, while $90 billion belong to European companies, the data showed.
The corporate exodus of around 1,000 foreign companies from Russia since its 2022 invasion of Ukraine has cost them more than $107 billion in write-downs and lost revenue, according to a Reuters analysis of company filings and statements published at the end of March.
The Biden administration’s plan to punish Russia for its invasion of Ukraine has produced dismal results.
And I suppose the best laid plans often fail to produce the results anticipated. But what is now being disclosed is something other than the effect of punishing another country for violating international law. The US-led sanctions effort is punishing countries not a party to the conflict in Ukraine. The unintended damage to low-income countries economically punished by the US could very well result in damage (unintended or otherwise) to the US economically and geopolitically.
There are several reasons to be concerned about the Post report. Certainly, the impact on low-income countries is untenable for two reasons: We are punishing the wrong people, and the latter can ill afford the additional burden we have placed on them. Moreover, and this second issue is tied to the first, global political dynamics are changing. Asia, Africa and South America are seeking a greater voice in geopolitical affairs, and multipolar forums like the BRICs are gaining traction with the above regions. The low-income countries mentioned in the Post article predominate in those regions. Washington must more carefully weigh the potential consequences of its actions in its foreign policy initiatives. American foreign policy must have as an implied goal:
…to maintain America’s economic and political hegemony and thus leadership in the world – not work against it.
Consequences from foreign policy initiatives like the sanctions must be calculated so as to have the intended effect without the unintended collateral damage. It is the latter which can potentially cause more damage to America than that on our intended target. This is precisely what the Post article is about. East Asia and the Global South are waiting and watching to see what the US does in the new emerging geopolitical environment. They are already being presented with alternative schemes to the US “Greenback” and rival multipolar organizations to help them economically and politically. And some of them are listening.
I am Director of The Fulcrum Institute, a new organization of current and former scholars in the Humanities, Foreign Affairs and Philosophy, Situated in Houston, Texas, USA. The “Institute” focuses on the foreign policy initiatives of Europe as it relates to the economic and foreign policy initiatives of the US, UK, China and Russia. Our primary interest is in working towards an economic and political world in which more voices and fewer bombs are heard. (The website-URL will be live by late fall of 2024. The web address will be http://www.thefulcruminstitute.org.).
