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61. Europe and Iran: The Economic and Commercial Dimensions of a Strained Relationship

Author:
Cornelius Adebahr
Publication Date:
12-2018
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
Europe and Iran had begun to invest in a closer commercial relationship just when the United States withdrew from the nuclear deal in May 2018. Since then, Washington has re-imposed its stringent economic sanctions, targeting Iran’s oil exports as a major source of government revenue but also banning financial transactions with the country. This poses an enormous challenge for the EU, which had intended to use the 2015 agreement as a stepping stone to promote regional cooperation and, ultimately, a more comprehensive relationship with Iran. Paper produced in the framework of the IAI-FEPS project entitled “Europe and Iran in a fast-changing Middle East: Confidence-building measures, security dialogue and regional cooperation”, December 2018.
Topic:
Foreign Policy, International Trade and Finance, Bilateral Relations, Sanctions, and Transatlantic Relations
Political Geography:
Europe, Iran, Middle East, North America, United States of America, and European Union

62. Consensus for Action: Towards a More Effective EU Sanctions Policy

Author:
Tom Keatinge and Emil Dall
Publication Date:
11-2018
Content Type:
Working Paper
Institution:
Center on Global Energy Policy
Abstract:
Sanctions are a key tool of foreign policy but have taken on greater salience over the last 20 years as governments have reached for leverage in negotiations but foregone the use of force. During this period, the alignment of the design and implementation of sanctions by the European Union and the United States has, on the whole, been an article of faith as the transatlantic allies have pursued mutual foreign policy objectives. Yet despite the consistency of objectives, the bureaucratic structures, technical mechanisms, and processes by which the European Union and the United States design and implement sanctions differ significantly. These differences—always present—have been amplified by the current stresses in transatlantic relations and may be further exacerbated when the United Kingdom leaves the European Union in March 2019. The reasons behind these differences are myriad and touch upon both structural matters (such as the construction of the European Union and the manner in which its member states can enact policy) and more philosophical matters, as the focus on due process and human rights in EU sanctions policy demonstrates. But given the importance of transatlantic ties and cooperation in managing the sorts of problems that sanctions are usually developed to address, it is important for both the United States and the European Union to work through these differences. Toward that goal, this paper provides a European perspective on US sanctions activity, where there are differences in approach, in particular EU attitudes toward secondary sanctions put in place by the United States, and it explains the complications that may result from the United Kingdom’s withdrawal from the European Union. The paper concludes with recommendations for how the European Union can address the challenges it faces in achieving an effective sanctions policy. In short, it recommends the following: The European Union should work through its structural issues to create a more decisive and effective EU sanctions policy. The implementation and enforcement of sanctions at the member state level must be improved, and a formal EU-level sanctions body is needed to independently monitor compliance with sanctions across the European Union. A clear mechanism for ensuring the coordination and effectiveness of EU-UK post-Brexit sanctions policy must be established. The global centrality of both the European Union’s economy and the United Kingdom’s financial sector combine to present a powerful sanctions force and must thus be closely coordinated to ensure maximum effectiveness. The European Union should directly address the matter of human rights exemptions by incorporating it as a key consideration of the EU-level sanctions body identified in the first recommendation. The European Union should establish a clear channel for human rights exemptions throughout the lifetime of sanctions regimes. The European Union should consider its options to address the ability of non-EU actors to abuse EU-originating supply chains and financial services, which represents a considerable sanctions implementation vulnerability. Finally, though US-EU misalignment on sanctions is growing, policy makers must stay seized of the necessity to maintain and improve communications and coordination to prevent current schisms from having serious long-term effects on international security.
Topic:
Foreign Policy, Human Rights, Sanctions, European Union, and Brexit
Political Geography:
United States, United Kingdom, and Europe

63. How the Blockchain Can Help Venezuela’s Future Recovery Promoting Sound Policy Foundations for Venezuela’s Postcrisis Recovery and Reform

Author:
Moises Rendon
Publication Date:
02-2018
Content Type:
Working Paper
Institution:
Center for Strategic and International Studies
Abstract:
Nicolas Maduro’s misguided attempt to create a government-controlled and natural resource-backed cryptocurrency (“Petro”) is nothing more than a desperate effort to try to facilitate international finance while avoiding U.S. sanctions on new debt issuance. However, there remains the potential for blockchain platforms to empower Venezuelans through legitimate means during the country’s future recovery. These benefits can extend to future government institutions, the private sector, and nonprofit organizations. Blockchain technology can radically shape the rebuilding of Venezuela during a “Day After” scenario for the better.
Topic:
Science and Technology, Sanctions, Cryptocurrencies, and Recovery
Political Geography:
United States, South America, Venezuela, and North America

64. Russia’s National Oil Champion Goes Global

Author:
Edward C. Chow and Andrew J. Stanley
Publication Date:
02-2018
Content Type:
Working Paper
Institution:
Center for Strategic and International Studies
Abstract:
After the Soviet Union collapsed and Russia was roiled by political and economic chaos, many state-owned assets were privatized based on political connections and corrupt practices. The oil sector was a particularly attractive, but by no means the only, target for these privatizations. By the end of the 1990s, almost all of Russia’s oil production was privately owned. In spite of continued nontransparency, the oil sector began to resemble a competitive market with private investors introducing Western technology, financial accounting, and operating and management practices. It also started to attract major foreign investments. The remaining state oil assets were managed by a sleepy state enterprise named Rosneft that, in spite of its name (Russian Oil), produced less than 5 percent of Russia’s oil. Today, majority state-owned Rosneft produces almost half of Russia’s oil. Its daily oil production of 4.6 million barrels, according to its last reported quarterly results, is double that of the world’s largest oil company by market capitalization, ExxonMobil, which last reported daily liquids production of 2.3 million barrels. Rosneft’s rapid rise coincided with the rule of Vladimir Putin, who first became president of Russia in 2000. Its production increases were built largely on the backs of controversial acquisitions of assets previously held by private companies such as Yukos, TNK-BP, and Bashneft. Rosneft’s acquisition spree accelerated after Putin’s close associate and Russia’s then-deputy prime minister Igor Sechin became chairman of its board of directors in 2004. Sechin left government in 2012 to take over as Rosneft’s chief executive officer. Rosneft’s board of directors is now chaired by former German chancellor Gerhard Schroeder. Rosneft’s transformation as Russia’s national oil champion is consistent with Putin’s policy of regaining state control over the commanding heights of the Russian economy, which is more reliant on oil income today than the Soviet Union ever was. Rosneft is Russia’s largest taxpayer and contributed a quarter of government revenue in 2014. Until recently, Rosneft concentrated mainly on consolidating its dominance over the domestic oil patch. It is also Russia’s leading refiner and is increasing natural gas production for direct sales to domestic gas users, producing 67 billion cubic meters in 2016. In 2014, Russia was hit by the twin shocks of a global oil price collapse and Western economic sanctions enacted after its aggression against Ukraine in the Donbas region and annexation of Crimea. These developments affected Rosneft severely since it involved the value of the commodity it produces and sells and restricted Rosneft’s access to international financing when it was heavily indebted from the aforementioned acquisitions. A normal company might hunker down, repair its balance sheet, and wait for external conditions to improve. Instead Rosneft has done the exact opposite and expanded its international business aggressively. As part of the 2014 U.S.-led sanction efforts, Igor Sechin, as the leading figure of Russia’s largest petroleum company and his having “shown utter loyalty to Vladimir Putin,” was directly sanctioned. Further Russian sanctions enacted by Congress in 2017 called on the U.S. Department of the Treasury to submit a detailed report on senior political figures, oligarchs, and parastatal entities as determined by their “closeness to the Russian regime and their net worth.” While the unclassified version of the report released to Congress on January 29 included Igor Sechin, the report was poorly received and largely regarded as nothing more than a “rich list” by Russian experts. However, the report also contains classified annexes, including a list of parastatal entities and supporting analysis, which by definition would have included Rosneft. Although Rosneft’s rapid international expansion is too recent to assess definitely, this paper describes some of Rosneft’s overseas ventures and explores possible motivations, economic and political, behind them.
Topic:
Energy Policy, Oil, Foreign Direct Investment, Sanctions, Gas, Transparency, and Private Sector
Political Geography:
Russia, United States, Europe, and Eastern Europe

65. Iran Sanctions at the Halfway Point

Author:
Sarah Ladislaw and Frank A. Verrastro
Publication Date:
08-2018
Content Type:
Working Paper
Institution:
Center for Strategic and International Studies
Abstract:
On May 8, President Trump announced the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA), the nuclear agreement endorsed by Iran, the United States, France, Germany, China, Russia, and the United Kingdom. Concurrent with that action, Section 1245 of the National Defense Authorization Act of FY 2012 (NDAA) was reactivated, along with other U.S. sanctions under the Iran Freedom and Counter-proliferation Act (IFCA), the Iran Sanctions Act (ISA), and the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRSHRA). Departments and agencies are implementing these sanctions with 90-day and 180-day wind down periods, after which time the applicable sanctions come back into full effect.1 Since May, administration officials from several agencies have been travelling around the world to explain the rationale for the decision to pull out of the JCPOA and persuade countries to comply with the sanctions program. Earlier this week (following the end of the first 90-day wind down period), the administration announced that on August 7 sanctions would be reimposed on: Iran’s automotive sector; Activities related to the issuance of sovereign debt; Transactions related to the Iranian rial; Iran’s trade in gold and other precious metals; Graphite, aluminum, steel, coal, and software used in industrial processes; The acquisition of U.S. bank notes by the government of Iran.
Topic:
Diplomacy, Nuclear Weapons, Sanctions, and JCPOA
Political Geography:
United States, Iran, Middle East, and Israel

66. Talks, Markets, and Recognition? Addressing the North Korean Nuclear Conundrum

Author:
Ramon Pacheco Pardo
Publication Date:
06-2018
Content Type:
Journal Article
Journal:
The Journal of Diplomacy and International Relations
Institution:
School of Diplomacy and International Relations, Seton Hall University
Abstract:
North Korea has become a de facto nuclear power. Regardless of one’s views about the regime and its treatment of the country’s ordinary citizens, its nuclear and weapons of mass destruction (WMD) programs, and its illegal activities ranging from proliferation of WMD to currency counterfeiting, the international community has to accept that it is dealing with a nuclear North Korea. This means that stopping and rolling back Pyongyang’s nuclear programme is no longer a realistic goal, at least in the short term. Both in public and in private, the regime has clearly indicated that the program itself is not a bargaining tool. Rather, the Kim Jong-un regime considers a nuclear deterrent the best means to avoid the same fate as the Muammar Gaddafi and Saddam Hussein regimes: military strikes led or supported by the U.S., followed by the execution of their leaders at the hands of their former citizens. The debate has to now shift towards how to deal with a nuclear North Korea. Sanctions have clearly not worked. The current round of UN and bilateral sanctions implemented from July 2006 onwards has failed. Pyongyang had not even conducted a nuclear test when sanctions were first implemented. Today, it is believed to be in possession of dozens of nuclear devices.3 Isolation of the Kim Jong-un regime has not worked either. Two consecutive South Korean conservative governments led by Lee Myungbak and Park Geun-hye dismantled many of the cooperation mechanisms set up by their predecessors. The Barack Obama administration refused to countenance diplomatic engagement with Pyongyang unless it changed its behavior. Xi Jinping is yet to meet with Kim Jong-un, even though they sit less than two hours away from each other. In return for sanctions and isolation, North Korea has pressed ahead with its nuclear and ballistic missile programs. Deterrence is a useful way to prevent a North Korean attack on Seoul, Tokyo or the U.S. mainland. Nevertheless, few experts think that Pyongyang would strike first.4 Engagement thus seems to be the only viable option to deal with Pyongyang.
Topic:
Diplomacy, Nuclear Weapons, Sanctions, Nuclear Power, and Engagement
Political Geography:
Asia, North Korea, North America, and United States of America

67. Art of Economic Statecraft: When Pain Matters

Author:
Dimitriy Nurullayev
Publication Date:
10-2018
Content Type:
Journal Article
Journal:
Journal of Military and Strategic Studies
Institution:
Centre for Military, Security and Strategic Studies
Abstract:
When employing economic sanctions, what are the best practices to induce desired outcomes for the sending state(s)? Broad economic sanctions have been shown to be ineffective. Recognizing that sanctioning as a diplomatic strategy is unlikely to be abandoned, scholars have focused on making the case for smart timing and targeting of sanctions. Their arguments stem from deciphering the internal drivers of decision making within targeted states. Unlike work that is reliant on solely internal mechanisms, this paper enhances the understanding of targeted states by examining cost-benefit strategies of (1) individual leaders and (2) nation states that are in pursuit of strategic goals. This paper argues that when sanctions create large costs (anticipated or inflicted) on the target, those sanctions have a higher likelihood of producing successful outcomes regardless whether the sanctions are “smart” This study utilizes TIES data on sanctioning and Polity scores on democracy. I use ordinal logit and ordinary least squares regression to estimate the models and find strong support for the hypothesis
Topic:
Diplomacy, Economics, Nationalism, and Sanctions
Political Geography:
Global Focus

68. Budgetary Sanctions as a Mechanism to Protect the Rule of Law in the EU

Author:
Marta Makowska and Melchior Szczepanik
Publication Date:
09-2018
Content Type:
Special Report
Institution:
The Polish Institute of International Affairs
Abstract:
In the draft multiannual financial framework (MFF) 2021-2027, the European Commission (EC) proposed a political conditionality mechanism through which EU funds could be suspended for countries violating the rule of law. If implemented, it would grant the EC new powers to control the condition of the rule of law in Member States, but it is based on imprecise criteria. Even though the EC has declared that the mechanism is designed to discipline state institutions responsible for breaches, it could be damaging mainly to the final beneficiaries of the funds.
Topic:
Sanctions, Budget, European Union, and Rule of Law
Political Geography:
Europe

69. North Korea’s Economic Strategy, 2018

Author:
William B. Brown
Publication Date:
08-2018
Content Type:
Special Report
Institution:
Korea Economic Institute of America (KEI)
Abstract:
This chapter takes the perspective of North Korea’s leadership as it confronts difficult economic problems in the remaining months of 2018. The major current and potential issues are listed and prioritized. Short and longer-term remedies are presented, each with trade-offs that affect other economic and policy issues. Given the absence of direct reporting from North Korea, the issues and debates presented are speculative, designed to give the reader a more comprehensive understanding of North Korea’s current problems than is ordinarily presented in western media. Kim Jong-un’s recent diplomatic offensive, reaching out to South Korea, China, and the United States is, in this view, suggestive of these internal economic troubles in addition to the nuclear security issues. The troubles are both short-term—the collapse in trade with China in just the past few months—and long-term, the slow-motion collapse of the communist country’s “command” economy. And much more than in the past, the problems relate to the regime’s unusual and dangerous monetary system, money being a normal issue for most governments but a relatively new one for this still partially rationed, or planned, oriented system. The leadership may have little choice but to let the domestic economy move further from the plan—allowing decentralized market and private activities more sway—than ever before. This would help cushion the central government from losses due to the sanctions and open the door to a much more prosperous future. Without major moves in this direction, inflation and unemployment may cascade into social crisis. It should be noted, that the recent Assembly Meetings, which annually focus on the economy, gave little official indication of policy changes, only a sense of digging in further to protect the regime from outside forces. But just a week later, Kim may have telegraphed an upcoming sea change when, in his address to the Party Central Committee plenum, that he is instituting a new Party Line, socialist economic construction, as the total focus of the Party and the country. Major changes, if they are to occur, will likely come after the upcoming important summits with South Korea and the U.S.1 There is little doubt that the economy in 2018 is in very poor condition, delivering one of the worst productivity rates—productivity in terms of labor and of capital—in the world, but it is important to recognize that this is due not to natural circumstances but to decisions the government has made over the years, and trade-offs it has already made. This suggests that astute government policy can create solutions and restore growth. Remedies of the sort expressed here, for example in liquidating, that is selling or leasing state assets to private buyers, raising fixed prices for state delivered electricity and for water and other utilities, and giving large pay raises to the millions of state workers who now rely on rations, while culling their numbers, would require difficult economic and social trade-offs; one might say there is no free lunch for Kim and his regime although no doubt they are looking for one, even in these summits. The chapter discusses just what kinds of decisions might be made and the likely consequences. Negotiations being set with South Korea and with the United States, and likely more discussions with China, may weigh heavily in how far Pyongyang will be willing to go in these respects. In my view the regime will be looking for: outright aid, payments for pushing back the nuclear weapons program, and premature relief from sanctions, which would only give the regime time to avoid the hard choices needed to permanently fix the broken economic system.
Topic:
Diplomacy, Economics, Sanctions, Services, and Trade
Political Geography:
China, Asia, North Korea, and Korea

70. South Korea’s Strategic Approach to China (or Lack of It)

Author:
Chung Jae Ho
Publication Date:
08-2018
Content Type:
Special Report
Institution:
Korea Economic Institute of America (KEI)
Abstract:
Pertinent literature abounds on how East Asian states have struggled to position themselves vis-à-vis a rising China over the past two decades. Due to its geographical proximity and cultural similarities with China, as well as its strategic importance to both the United States and China, South Korea’s tightrope-walking has been more pronounced than anyone else’s.1 Given the crucial strategic issues regarding U.S.-China relations and the North Korean conundrum, how the Seoul-Beijing relationship is to evolve undoubtedly constitutes a key variable in regional security dynamics. This chapter asks what is Seoul’s recipe for dealing with a China that is becoming more “assertive,” examining its changing strategic and diplomatic stance over the years of the Park Geun-hye administration and the first year of the Moon Jae-in government. Of the six sections, the first offers a brief overview of the complex relationship since diplomatic normalization in 1992. The second outlines key features of an era of overoptimism during the first three years of the Park administration (2013-15). The third delves into the issue of THAAD (terminal high-altitude area defense) deployment and how that utterly shattered the Park-Xi honeymoon in 2016. The fourth offers a discussion on China’s narrowly-focused sanctions during 2016-17. The fifth is devoted to the first year of the Moon administration, focusing on envoy politics, the “three-noes controversy,” and Moon’s state visit to China. The final section provides concluding assessments of the factors critical in shaping Moon’s policy toward China and where the room for mending relations remains.
Topic:
International Relations, Diplomacy, Sanctions, and Grand Strategy
Political Geography:
China, East Asia, Asia, and South Korea