In these early post-election days, the incoming Trump administration has specified it will again resort to maximum pressure sanctions as a significant policy tool wielded against enemies and disruptive actors, especially Iran.
In the pursuit of maximum pressure, or any other sanctions deployment, the new administration might find several new and surprising stumbling blocks in the international political economy that make sanctions more challenging. Specifically, the keys to success that may have existed for maximal economic pain through sanctions to result in the political gain of changing the target’s behavior, are significantly less favorable than at the start of this decade.
First, as became apparent in the maximum pressure cases of Iran and Venezuela, for maximum pressure to yield maximum results requires the United States to impose secondary sanctions on friend and foe alike. But larger economies, such as in the European Union or China, now seek to preserve various trade or financial interactions with the targeted country, especially when the goods and exchanges are non-strategic and critical to their bottom line.
Maintaining a tight, successful sanctions regime requires the full cooperation of all potential and existing traders and financiers engaged with the nation directly targeted by sanctions. In the globalizing economy of 2000 to around 2015, third-party nations derived substantially more benefits for supporting sanctions than any short-term gain for being a sanctions buster. This is no longer the case, especially for oil embargoes, which once served as the ultimate weapon against producing nations like Iran and Venezuela. Instead, States frequently seek and obtain discount pricing by secretly purchasing oil from a sanctioned country — all the while stating political support for such U.S. or U.N. sanctions.
Various diversifications and side-stepping of the usual rules governing the global economy, especially those affecting financial exchanges, have now opened more opportunity for states to work around a tight sanctions system and avoid the worst impacts of secondary sanctions. For example, such an effort was mounted by most European countries through the Instrument in Support of Trade Exchanges (INSTEX). This mechanism was designed to protect various nations’ expanding economic relations with Iran from U.S. maximum pressure and secondary sanctions. While this alternative system had minimal success and lifespan, it serves as one model for some sanctions survival strategies going forward.
Cryptocurrencies and the Blockchain
A second — and some would say ultimate — sanctions stumbling block of this decade has been the emergence of the financial system of cryptocurrencies and the blockchain, means of operation that defy identification of actors who move monies transnationally. Thus the “follow the money” strategy by which sanctions imposers attempt to freeze a target’s assets or stymie the illicit financing that aided its sanctions evasion, has been neutralized by cryptocurrency exchanges.
As heavily sanctioned North Korea has demonstrated, expertise in cybercrime that steals the cybercurrency wealth of unprotected accounts is a complete game changer that undermines any potential success of targeted financial sanctions. As reported by the United Nations Panel of Experts (on which I have served in the past), between 2017 and 2022, North Korean cybercrime generated more than $2 billion to support of its nuclear program and the survival of its regime. A subsequent report earlier this year put the figure at $3 billion between 2017 and 2023. This is the premier case of contemporary and likely future sanctions evasion.
A third dilemma for attaining sanctions success now has developed due to the highly sophisticated and deeply damaging trade and financial sanctions that the United States can impose. Much more than was the case a decade ago, such stronger restrictions now inevitably have detrimental impacts to U.S. firms and banks with high volume business in the geographic region of the targeted country. Companies incur increased costs from the required due diligence and continual monitoring regarding their transportation carriers and networks, insurance services, and corresponding bank exchanges, each of which are dealing with a diversity of clients that may create new sanctions exposure to the company. Such negative effects on U.S. business might be tolerated in the short term out of patriotism or in response to threats. But profit loss for an extended time will not be tolerated by CEOs or shareholders.
Further, broad-ranging sanctions lead banks and businesses to assess probable vulnerabilities in all the gray zones of engagement that invariably arise in such environments. Because banks have a high risk-averse sensibility, they foreclose themselves from even legitimate exchange with partners in countries facing secondary sanctions. This sanctions fear leads quickly to over-compliance that costs businesses significant future income. This trend increased even under President Joe Biden’s less aggressive use of sanctions.
Russia and China Lead Push Against Sanctions
On a fourth factor for sanctions success, if and when the new administration declares maximum and secondary sanctions, it will be surprised by the strong headwinds of opposition to sanctions from both the global North and the South. For the past decade dissension about the entire sanctions enterprise, often led by Russia and China, has united and expanded the BRICS network of former sanctioned nations to declare sanctions as 21st century imperialism and full-scale economic war.
Within the United States, a related resounding critique argued that as a foreign policy tool, sanctions were too easy to impose, levied too frequently, and too disconnected from related economic or political/diplomatic levers meant to produce target compliance. This growing number of anti-sanctions claimants further argue that sanctions have low rates of success and unchecked duration and that they damage U.S. prestige worldwide.
Particularly stinging has been the global protest regarding the harsh socio-economic impact on civilians who were not the targets of the sanctions. These concerns led to significant action when the United States joined Ireland in spearheading U.N. Security Council Resolution 2664 (December 2022), which created an unprecedented humanitarian carveout for most U.N. asset freeze regimes. But more sanctions damage needs addressing, and the momentum for change grows exponentially.
These factors confront the incoming administration with an unexpected, harsh reality: bad actors around the globe are `so over’ maximum pressure sanctions. The strangulation strength that imposers once wielded has given way to a chess game that favors sanctions evasion.