Secondary Sanctions: The Impact on Targeted Economies and the Geostrategic Implications
This educational program, developed by The Association of Foreign Press Correspondents (AFPC-USA) in partnership with the Hinrich Foundation, provided foreign correspondents with the opportunity to learn from four well-known experts and gain a deeper understanding of secondary sanctions. During 90 minutes, the panelists discussed how those secondary sanctions affect the targeted economy looking at Russia, China, and Iran as examples. They analyzed the effects, effectiveness, and side effects of recent U.S. and E.U. sanctions on Russia discussed China´s attempt to balance relations with Russia and the West in the light of Western sanctions on Moscow and looked into how China uses primary, secondary and comprehensive sanctions.
The educational program took place on October 6 and was moderated by Patrícia Vasconcellos, the U.S. correspondent for Brazilian TV network SBT. The Association of Foreign Press Correspondents (AFPC-USA) is solely responsible for its content.
Esfandyar Batmanghelidj, Agathe Demarais, Bryce Barros and Ali Wyne
Esfandyar Batmanghelidj, founder and CEO of the Bourse & Bazaar Foundation, a think tank focused on economic diplomacy, economic development, and economic justice in the Middle East and Central Asia, analyzed how secondary sanctions affect the target economy, looking at Iran and Russia. He argues that most of the economic headwinds are caused by the difficulty in sustaining imports not exports. Esfandyar also explains that ordinary people suffer because the most reliable economic consequence of sectoral/financial sanctions is inflation and there is always a structural adjustment in the target economy. In some ways, he says, sanctions favor the fortunes of elites who control capital. He notes that moderate the use of sanctions can be sustained by the argument that we are in the early stages of understanding those actions. In his presentation, Esfandyar also gave guidance for journalists who want to cover this topic. “I thought about put together some rules of thumb for reporting on secondary sanctions”, he said, explaining the steps for journalists who want to cover and write about this topic.
“We talk a lot about the steps the countries take to impose sanctions, the effects that those countries expect to see - countries that have sanctions imposed on them - but I think the question for journalists is often how you actually try to figure out what is happening in the targeted economy. My work has been focused on Iran for at least ten years and it has been a big experiment to try to understand the impact of sanctions on Iran and to cut to the noise” said Batmanghelidj.
Esfandyar has published peer-reviewed research on Iranian political economy, social history, and public health, as well as commentary on Iranian politics and economics. From 2021-2022, he was a visiting fellow with the Middle East and North Africa programme at the European Council on Foreign Relations.
Agathe Demarais, Global Forecasting Director at the Economist Intelligence Unit (EIU) and author of Backfire, an upcoming book discussing the global ripple effects of U.S. sanctions and the steps that targeted countries are taking to insulate themselves from U.S. penalties, answered key questions regarding the effects, effectiveness and side effects of recent U.S. and E.U. sanctions on Russia. Some questions answered during her presentation were “What is the impact of sanctions on the Russia economy?” Demarais said: “If we take a look at the economy data that we have, it is clear that sanctions are having a huge impact on the Russian economy” noting that a recession of -6% is expected this year in Russia.
“Will sanctions make Putin change course in Ukraine?”. Demarais affirms the answer is a short and firm ‘no’. “At the moment at least what we are seeing, and this is perhaps this is due to the fact that Russia is not a democracy so there is no avenues for people to voice their discontent with high inflation… So far, no, it doesn’t look like Putin´s calculus is going to change anytime soon in Ukraine and actually if we take a look in what has been happening in the past two weeks there, it has been a very worry scalation,” Demarais adds.
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She explained and argued about other questions like, “Is Russia managing to pivot towards China?” and “Why are the days of US sanctions numbered?” Demarais remembers that China uses CIP, the Cross-Border Interbank Payment System, and Russia has Mir, which are alternatives to the block of Swift for example. She notes that sanctioned countries have developed currency swap agreements to allow trade in local currency. “In the long term, and that´s what I argue in my book, it means the golden days of sanctions are over because if we have this rise in financial channels that are completely sanctions-proof, this brings the question of what the future of sanctions will be”, she says.
Prior to joining the EIU, Demarais worked as an economic advisor for the diplomatic corps of the French Treasury with postings in Russia and the Middle East. Agathe also worked in investment banking in Russia and the US. She has master’s degrees from Sciences Po Paris and Columbia University, where she studied as a Fulbright scholar. She speaks fluent French, English, Russian, Arabic, and Spanish.
Ali Wyne, senior analyst with Eurasia Group’s Global Macro-Geopolitics practice, David Rockefeller fellow with the Trilateral Commission, term member of the Council on Foreign Relations and security fellow with the Truman National Security Project discussed China´s attempt to balance relations with Russia and the West in the light of Western sanctions on Moscow and the use of measures such as the Anti-Foreign Sanctions Law to apply economic pressure against countries that cross it politically. Ali Wyne discussed the conviction that achieving greater technological self-reliance and reducing its interdependence with the US is a national security imperative.
Wyne spoke about other questions as “How China broadly thinks about interdependence with the United States and with the West and which type of retaliatory apparatus China is putting in place in order to push back against sanctions from advanced industrial democracies”.
Quoting Evan S. Medeiros, Wyne says China faces a trilemma which means the Asian country is trying to achieve three objectives simultaneously and this is very difficult. “China wants to maintain its commitment to Ukraine´s territorial sovereignty, at the same time wants to maintain their relation with Russia without damaging its relation with the US”, he says. Ali adds that “the longer the war drags on and the longer China, at least publicly, refrain for condemning Russia´s aggression, the more its relation with the West will suffer”.
Ali Wyne also serves on Foreign Policy for America’s Board of Directors and he is the author of the new book America’s Great-Power Opportunity: Revitalizing U.S. Foreign Policy to Meet the Challenges of Strategic Competition (Polity, 2022).
Bryce Barros, China Affairs Analyst at the Alliance for Securing Democracy at the German Marshall Fund, gave another perspective for this panel, bringing into light a specific example: how the Chinese government sanctioned Lithuania and used sanctions in order to achieve their political goals.
Barros explained how China uses primary, secondary, and comprehensive sanctions, China´s actions against Lithuania and the effectiveness of those actions to induce geostrategic policy changes from the small Baltic state and whether Lithuania is a test case for future instances of economic coercion against smaller NATO/EU members states and what is the EU´s Anti-Coercion Instrument and if it is needed.
“China has three types of sanctions regulations”, he explained, saying that “China does have other means to really try to bring smaller and medium-sized countries to heal especially those that might have closer ties financially and economically.” According to Barros, the results regarding this matter have been a little mixed .
Bryce Barros previously served as an analyst at Kharon, researching sanctioned actors and related commercial activities tied to the proliferation of weapons of mass destruction, strategic trade controls, supply chains, and human rights abuses in the Indo-Pacific. Prior to that, he interned at the Long Term Strategy Group researching Sino-American Strategic Competition and the China Britain Business Council researching Chinese market entry for UK and EU companies. He is a Truman National Security Project Fellow, Aspen Security Forum Scholar, and a Council on Foreign Relations term member. He is an honorary graduate of the Republic of China (Taiwan) Military Academy. Bryce speaks Mandarin Chinese and Japanese and spent more than two decades specializing in the Indo-Pacific region.
Below, readers will find a summary of the most important takeaways from the presentation.
ON SANCTIONS AGAINST RUSSIA
Demarais notes that the sanctions are a clear message from the West and put a popular pressure on Putin´s regime while asphyxiating the Russian economy in the long-term. She adds that sanctions are having a big impact on the Russian economy which is heading into a huge recession this year and next year.
According to Demarais, U.S. and Western sanctions won´t change Putin´s calculus and she highlights options to further tighten sanctions
She argues that emerging countries support Russia, 60% of the Russian population - or a bit more than that – live in neutral of Russia-leaning states and geopolitical fragmentation looks set to deepen.
Finally, Demarais dive into the side effects for sanctions arguing that it´s golden days are over.
ON CHINA´S TRILEMMA
Wyne argues that China is trying to achieve three objectives simultaneously regarding US/EU – Ukraine - Russia
Succeeding at these three goals is going to be difficult for China, he points out.
Wyne notes that anti-foreign sanctions law put economic pressure against countries that cross it politically and adds that reduce China´s interdependence with the US is a national security imperative.
ON CHINA SANCTIONS AND LITHUANIA
Barros talks about China using primary, secondary and comprehensive sanctions and explains how China´s actions against Lithuania can induce geostrategic policy changes from the small Baltic state.
He analyses whether Lithuania is a test case for future instances of economic coercion against smaller NATO/EU members states
Barros explains what is the EU´s Anti-Coercion Instrument and give arguments to analyze if it is needed.
ON REPORTING ON SECONDARY SANCTIONS
Batmanghelidj gives three rules of thumb for reporting on secondary sanctions. “The first is that economic stagnation and not economic collapse should be considered the lightest outcome when secondary sanctions are imposed on a significant economy. The second rule of thumb is that it is important to pay attention to imports and not just exports when we are looking at the impact of sanctions on trade. The third rule of thumb is that it is important to focus on a powerful relation between states and society. This leads to Patricia´s question which is the kind of impacts that are felt by people”, he says.
Sanctions are a legal tool that target economic actors and activities in ways to produce political and social effects. To cut through the noise, it is useful to have some basic rules of thumb but because each sanctions case is different and because the use of secondary sanctions is still relatively new these rules are still being hypothesized and tested. Journalists are part of that process, concludes Batmanghelidj.
