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America’s Adversaries and Sanctions Dead-ends

By Andray Abrahamian

Earlier this month, President Donald Trump warned Iraq’s government against expelling U.S. forces from the country. “If they do ask us to leave,” he said, “if we don’t do it in a very friendly basis, we will charge them sanctions like they’ve never seen before ever. It’ll make Iranian sanctions look somewhat tame.” While this was an idiosyncratic statement to say the least, it does highlight the United States’ over-reliance on sanctions as a foreign policy tool. When we don’t know what to do: sanctions.

With Iraq, this threat might have an impact: the Iraqi political-economy is enmeshed with the United States. Mr. Trump seeks to alter the calculation of a single debated policy issue in Baghdad, albeit a significant one. The goal is discreet, which is when sanctions have the best chance of success.

When it comes to adversaries who tend to view relations with the United States as a zero-sum conflict, it becomes trickier, especially when the United States is asking for a fundamental change in national defense and foreign policy. This brings us to both North Korea and Iran. These two countries were adversaries of the United States long before Mr. Trump was a reality TV star, much less the U.S. President. He inherited and inflamed both relationships, before creating divergent paths: dialogue (with North Korea) and pressure (with Iran). Sadly, both approaches seem to leading to dead ends. Yet sanctions targeting both Iran and the DPRK will remain.

The dead end is this: when targeted states believe that they must not – nay, cannot – yield to their more powerful enemy, even under damaging sanctions, they find coping mechanisms. North Korea and Iran both have become adept at smuggling their main exports. U.S. unilateral sanctions ban the sale of Iranian oil and threaten importers elsewhere with penalties if they don’t comply. UN sanctions on North Korea block the exportation of coal, seafood and other goods. Both states therefore hide their shipments, reflagging and changing the identification codes of their ships and turning off the transponders that all merchant vessels are supposed to use to allow tracking. Both countries have learned to conduct ship-to-ship transfers at sea to move products onto non-sanctioned vessels.

Iran and North Korea are both forbidden by the UN from exporting weaponry, but continue to do so. It turns out the global arms trade is a shadowy world, full of brokers willing to bend and break the rules. Both states have come to rely on a network of individual actors abroad, motivated by high profit margins for high risks, and countries whose interests are not aligned with the United States, to survive.

It’s not that sanctions don’t have costs. Smuggling is no substitution for normal exports and state coffers in both Tehran and Pyongyang are emptier than they would be without sanctions. But as resources dwindle, the core institutions of the state tend to get a bigger share of a shrinking pie as their governments double down on hardline positions. In both countries this means the military and security services. The further away you are from the heart of the system, the less there is for you.

In both Iran and North Korea, there is anecdotal evidence of medical supplies being limited and NGO relief work being hampered by sanctions. In Iran, food prices have soared under sanctions, causing hardship. In North Korea, which is a far more opaque country, it is less clear how nutrition is being impacted, but it seems likely that the most vulnerable are being harmed.

Ordinary citizens also find coping mechanisms through smuggling and informal money transfers. Money transfers in Iran, using what is called a hawala system, work like this: let’s say you wanted to buy a $5,000 Persian carpet. You’d wire the money to an “exchanger” – a hawaladar – in, say, Dubai. He’d call his counterpart in Tehran and say, “I’ve got the dollars here. You can put the equivalent into the rug merchant’s local account and tell him to send the rug.” So trade with Iran isn’t completely stopped, but ordinary businesses pay a premium: the carpet merchant has to pay for the exchanger’s services, often 3 to 5 percent in the case of Dubai. The carpet may also be sent to a third country to hide its origin.

The commissions taken by Chinese financiers for facilitating North Korea’s transactions are higher. Estimates range from 5 to 20 percent, but can increase depending on risk perception. This is, of course, for customers who show up at all, given the hassle and possibility of risking the ire of the United States. Certainly, major companies will steer clear.

What is most likely with both Iran and North Korea in 2020 is period of increased tensions and provocations. This will lead to additional sanctions by Washington, but with no clear solutions for resolving its tensions with either Iran or North Korea. Neither regime will disappear, nor relax its control over its citizens. Great Powers whose interests are not aligned with the United States will throw lifelines to these beleaguered economies and ordinary citizens will find ways to suffer through reduced economic opportunities. Continued economic pressure will further marginalize whatever voices for compromise and dialogue exist in both Tehran and Pyongyang as policymakers fall in line with hardline approaches to the United States.  The leadership in Tehran will increase support for proxy forces around the Middle East and gain influence in Iraq while leaders in Pyongyang will continue to place their limited resources into furthering their nuclear and missile programs.

In this context, continuing to “charge them sanctions” unless the target states offer concessions beyond what they can tolerate harms American interests. And of course it harms ordinary citizens whose only crime is being born in either the Islamic Republic of Iran or the Democratic People’s Republic of North Korea.

Andray Abrahamian is a Non-Resident Fellow at the Korea Economic Institute and Visiting Scholar at George Mason University Korea and Senior Adjunct Fellow at Pacific Forum. The views expressed here are the author’s alone.

Photo from Gage Skidmore’s photostream on flickr Creative Commons.

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