Brookings: Topics - Sanctions

Getting Kim Jong Un's Attention

Michael E. O'Hanlon and Mike Mochizuki — Thu, 11 Apr 2013 09:19:00 -0400

Nothing about the international response to North Korea's third nuclear test in February or subsequent provocations has been unreasonable. The crisis is entirely of Pyongyang's making. But it is possible that the hard-line approach taken by Washington, Seoul and other capitals to the North Korean bluster, brinkmanship and bombast has been far less than optimal.

We need a firm policy. North Korea must pay a price for its irresponsible and dangerous behavior, and know that the world is united in standing against it. The resolve must begin with the U.S.-South Korean military alliance but extend to other nations, most notably China, North Korea's only ally and main benefactor.

But there are a couple of problems. One is that China is uneasy about jeopardizing stability next to its borders and only goes along with sanctions reluctantly. Indeed, one possible explanation for North Korea's behavior is that it is seeking to spook leaders in Beijing so severely that they will be even more averse to applying any further sanctions, perhaps after another North Korean nuclear test.

And the worse this crisis gets, the more it increases the odds of North Korea's young leader, Kim Jong Un, further entrenching himself in hard-line positions from which it will be difficult to backtrack later. Among other things, it would raise the odds that he will seek to accelerate and expand nuclear weapons production activities.

We need a more creative policy should there be another crisis or a substantial worsening of this one (beyond a firing of a medium-range missile, for example). More sanctions might be needed. But new sanctions should sunset automatically, say after two years, unless Pyongyang tests another bomb, expands nuclear production or carries out another aggressive act leading to loss of life.

The key sanctions that could still be imposed would affect basic trade and aid in basic consumer goods, largely what China and North Korea exchange. Most sanctions to date are on banking, technology and the assets of certain individuals.

Temporary sanctions accomplish several goals. They constitute a firm response themselves. But because they do not last forever, they provide an incentive for better North Korean behavior. They also give a nod to China's worry that strong-armed international action against the Kim regime, however justified, is risky. Chinese leaders may or may not be right, but there can be little doubt this is how they think.

At this point it is too late to turn existing, permanent U.N. sanctions into temporary ones without any North Korean concessions, as that would reward Pyongyang's behavior. But we do need to look for ways to de-escalate this crisis. We also need to look for ways to more generally contain the downward trajectory of Pyongyang's relationship with the outside world. As bad as things are now, they can get worse if the regime reactivates its plutonium-producing reactor or expands its suspected uranium enrichment, with the possibility that bombs could be sold abroad.

Although the U.S. position on key issues should stay firm, we should also be willing to talk with North Korea at any point. Beyond that, Washington needs to signal a willingness to engage in a much broader discussion leading to a road map for a comprehensive deal. Right now, Pyongyang shows little interest in internal reform. It needs to be encouraged to move in the direction that China, Vietnam and now Myanmar have taken: reform from within. And the U.S. should work closely with South Korea, Japan, China and Russia to develop a truly coordinated strategy to steer North Korea in this direction.

The regime need not commit up front to relinquishing every nuclear weapon for this kind of deal to begin. But if it is willing to stop producing nuclear arms, gradually scale back its military and begin to reform and ultimately dismantle its gulag system of labor camps and penal colonies, Washington should make it clear that U.S. and international help can extend to much broader economic and technical assistance as well as a comprehensive peace deal.

This may sound like strange talk in the middle of such an acute crisis. But it is partly because the U.S. has no clear strategy for navigating the relationship with North Korea that small crises can metastasize, and that Kim, listening to his hard-line generals, may decide that he has no option but to double down on the juche (self-reliance) Stalinist system that his grandfather and father have built, and on their extremely dangerous confrontational policies toward the West. We need to create a light at the end of the tunnel, even if the light will be very faint for some time to come.

Authors

Michael E. O'Hanlon
Mike Mochizuki

Publication: Los Angeles Times

Image Source: © KCNA KCNA / Reuters

Examining North Korea’s Recent Heated Rhetoric

Strobe Talbott, Richard C. Bush III, Michael E. O'Hanlon and Jonathan D. Pollack — Fri, 29 Mar 2013 15:04:00 -0400

As the United States and South Korea undertake joint military exercises, North Korea has responded with harsh rhetoric, saying that its people are “burning with hatred” for the United States. Brookings President Strobe Talbott leads a discussion with Richard Bush, Michael O’Hanlon, and Jonathan Pollack focusing on the latest saber rattling by North Korea and exploring the intentions of Kim-Jong Un, North Korea’s young leader.

Strobe Talbott: Do you think that the current bluster (and more) from Pyongyang represents more of what we’ve seen before from North Korea or is there a real danger of conflict? If the latter, what should the U.S. be doing to prevent that terrible prospect and what would happen if it comes to blows?

Michael O’Hanlon: I recently wrote on the subject in Politico following the third nuclear test in an effort encourage the U.S. against overreaction given Kim Jong-Un's youth and inexperience—and his potential for moderation/change as he ages (I hope!). My proposal was to make any additional sanctions temporary, partly as a way to induce Chinese support and partly as an incentive to North Korea not to test again (since the new sanctions would only sunset in the event of no further tests or big provocations).

But, of course, that's not quite the same as an answer to your question. In light of the above thinking, my own druthers would be to make any upgrades in our capability quietly—even secretly—so as not to provoke the action-reaction cycle we are now in (e.g., sending F-22 aircraft to bases in South Korea to improve the effectiveness of any initial air strikes, but not telling anybody except Seoul).

Richard Bush: The consensus opinion among specialists is that North Korea’s recent actions are the same old-same old, the typical way North Korea responds to U.S.-ROK exercises every year. Specifically, because the regime portrays the exercises as a segue for a U.S.-ROK attack, even nuclear attack, then it must make at least verbal threats about what it will do when that war happens. The intensity this time may have been dialed up a bit because Kim 3.0 is feistier than his father was, but it's a question of degree.

What may happen (or may not) is a limited conventional strike at the DMZ, against a ROK naval ship, or against one of the West Sea Islands (like the one that preceded our November 2010 visit to Seoul). The ROKs have pledged retaliation, which does create the problem of escalation, but how it might play out is speculative at this point.

Talbott: Thanks, Richard. Most convincing and, to a point, reassuring.

O’Hanlon: Yes, to a point, indeed. "Consensus among specialists" is not always a concept I find reassuring, though! I am glad, Richard, that you seem willing to deviate somewhat from that consensus yourself (at least to some extent). This is probably the same old-same old….until it's not, that is. I actually do worry that the U.S. default approach of tit-for-tat with North Korea (and the imposition of additional, permanent sanctions after the third test), while of course morally defensible, may exacerbate the situation in this particular case—which feels somewhat different to me than past periods of bluster.

Talbott: Interesting point, Mike. I’d be interested in your assessment of Kim-Jong Un, or Kim 3.0 as Richard calls him. His recent rhetoric and actions show that he is willing to test the boundaries of what is internationally acceptable. But, I had the impression that he was subject to a lot of supervision from the North Korean military, meaning he doesn't have much autonomy, especially, one hopes, when it comes to declaring the Korean War back on and taking other actions that would significantly escalate the situation.

O’Hanlon: Right and Kim-Jong Un wants to be friends with Dennis Rodman and he grew up largely in Europe—and he doesn't strike me as the suicidal type, so I'm hoping that someday he'll want to be the next leader of a "reform from within" movement as in Vietnam years ago, Burma of late, etc. Obviously a long-shot concept at the moment though....

Jonathan Pollack: The reality is that we don't really know very much about what animates Kim 3.0, so we must infer from what we can observe about his behavior. He seems very much like Kim Il Sung and may even be modeling himself on his grandfather. (He has his physicality and extroversion; even his body language seems reminiscent of the grandfather.) Very few foreigners have met 3.0. The Chinese blessed his succession at an early date (November 2010, as I recall), when a then serving member of the Politburo Standing Committee was on the podium with young Mr. Kim. So far as I can determine no senior Chinese official has met with him since then, and he has not been invited to visit China. In contrast to the distinct warming in China-SK relations (including several messages between Xi Jinping and Pres Park), there is a decided coldness/distancing in China-NK relations. I think Beijing early on calculated that there was a potential opening with 3.0 (as did we—witness the abortive February 29 agreement), but this seems largely a dead letter at this point.

The most troubling possibility is that he is very full of himself, listens to few others, and is now consorting regularly with the North Korean military leadership. Despite some early hopes for reform in the North, he has now wrapped himself in the "military first" rhetoric every bit as much as his father did. Worse yet, he has a successful satellite launch and another nuclear test under his belt, with clear expectations that more could be in the offing.

As I wrote in the Foreign Policy program’s Big Bets-Black Swans project, there needs to be a much more determined effort by the United States and ROK to deal fully with China in the event that things go from bad to worse in Korea. Now is definitely the time, lest we find ourselves in an acute crisis. That said, North Korean propaganda always spikes whenever the U.S. and the ROK are in the middle of major exercises, so perhaps the latest campaign will subside as the exercises wind down next month. But the tone and threats are particularly worrisome at present - even they are intended largely for domestic effect.

O’Hanlon: That's an excellent point, Jonathan, if I may say so (the focus on consultation with China).

I can't disagree with any of the analysis, and of course, you know the dynamics in the region very well. However, I still would venture to say that our February 2012 hopes (just two months into 3.0's rule, when he still hadn't even turned 30 years old as I recall) were unrealistically optimistic that early in his tenure within a Stalinist system, and we should remember how unlikely glasnost and perestroika would have seemed (or Chinese and Vietnamese economic reform) a few years before they occurred. But that's a footnote, not a central argument, of course.

Pollack: I and a few others met with the State Department’s Glyn Davies immediately after the signing the 2/29/12 agreement. He remained very sober about the possibilities—and that it seemed too good to be true. Davies was careful not to oversell the agreement, which, in the end, blew up two weeks later.

Authors

Image Source: © KCNA KCNA / Reuters

UN Sanctions, North Korean Threats

Richard C. Bush III — Thu, 07 Mar 2013 14:28:00 -0500

The UN Security Council has unanimously condemned “in the strongest possible terms” North Korea’s February nuclear test (its third). It expanded financial sanctions, mandated close checks of cargo entering and exiting North Korea, and warned of future measure if Pyongyang persists in its provocative behavior.

Are these new sanctions likely to bring about an immediate and positive change in North Korean policy?

Probably not. Economic sanctions usually require a long period of time to “bite,” and they must be fully multilateral in scope. These new sanctions can further constrain the resources available to the resource-poor North Korean regime and thereby its broader policy choices. To have that effect, however, sound implementation is critical. This is particularly true of China, through which much of North Korea’s trade and financial transactions flow.

What is the underlying objective of the sanctions regime?

The goal of this and previous actions is to sharpen the choices of North Korea, to disabuse it of the idea that the international community will both accept it as a state with nuclear weapons and permit international economic activity on a normal basis. Only when it understands that it can only have one or the other will it even consider making a fundamental choice between the two. The transition to a new regime creates, in the medium term, the possibility of such a policy shift. If that does not happen, the international community will have to contain the consequences.

What should we make of North Korea’s threat to attack the United States?

Certainly, those threats cannot be dismissed out of hand. But Pyongyang has issued similar warnings before and not acted upon them. The regime has domestic reasons to make create a crisis atmosphere, and while it glories in shows of bravado and brinksmanship, it is not suicidal. Actually, the greatest danger in the near term is a conventional but limited military action against South Korea. Look for Seoul and Washington to strengthen deterrence against such attack and prepare a proportionate response should deterrence fail.

What is North Korea’s strategy that is driving these actions?

Just as the United States, South Korea and others have sought to sharpen Pyongyang’s choices, so too is North Korea trying to sharpen ours. There is a test of wills at play here. The salutary consequence of the current struggle is that it has led China to seriously question its past “even-handed” policy, which had the effect of indulging North Korea in its provocations.

Authors

Richard C. Bush III

Image Source: © Bobby Yip / Reuters

Try Temporary North Korea Sanctions

Michael E. O'Hanlon — Fri, 15 Feb 2013 00:00:00 -0500

What to do about North Korea after its third nuclear test on Monday - this one possibly involving a device employing highly enriched uranium rather than plutonium, and perhaps small enough to fit on a missile?

Unfortunately, the international community is at a loss. North Korea is already sanctioned extensively and without China, we cannot tighten the noose a great deal more. China for its part does not wish to increase the economic pressure on Pyongyang much further, fearing that North Korean instability could result. Moreover, North Korea has already shown that when it is sanctioned, it often ups the ante rather than back down.

There is another dilemma: North Korea may be producing highly enriched uranium at a secret site. This could give it the capacity to produce up to several bombs’ worth of U-235 per year, in theory. As Graham Allison of Harvard and others have warned, this could lead to North Korea selling nuclear materials to the highest bidder — something the United States should, as Allison advises, warn North Korea not to do in the strongest possible terms.

And there is one more complication, although this one is of a different sort. It has to do with the longer-term prospects for encouraging North Korean reform. While hope is clearly evaporating that North Korea’s new leader, Kim Jong-Un, might be more inclined to consider changes at home, and detente with the outside world, than did his father or grandfather, we should want to keep that option alive. After all, Vietnam and China ultimately reformed even while keeping their communist systems. There is a chance that North Korea will too — less out of any softening of the regime’s attitudes than out of economic necessity.

Clearly the new, 30-year old Kim is not showing any reformist inclinations right now. But it is possible that he feels political pressure internally to establish himself with hardliners before he can pivot to a more reasonable line. This may not be the likely future trajectory, yet it cannot be ruled out.

So here’s an idea: any additional U.N. sanctions, above and beyond the base that now exists, could be temporary. They could be constructed in such a way as to sunset automatically in say two years if there is no further nuclear testing in the interim. But they would automatically return if North Korea were to conduct another test, again for two years’ duration—or perhaps for three or four years in that event, to avoid any suggestion that this approach is somehow soft or lenient.

Such an approach might prove more negotiable with Beijing. It could also give Kim Jong Un, the new and young leader, a chance to reassess his belligerent ways — rather than lock ourselves into a permanently hostile dynamic with him.

Any lifting of other, preexisting sanctions, including trade sanctions, would require resolution of the broader nuclear problem. North Korea would have to stop enriching uranium and agree to a long-term plan for gradual de-nuclearization. Indeed, if it did these things while also gradually making other reforms, outside powers could also offer it the prospect of substantial development assistance in the future as well.

We are not at a point where that kind of road map to a grand bargain and fundamentally improved relationship can be realistically pursued. For now, therefore, the goal should be more modest: to provide a firm response to North Korea’s unacceptable behavior, but do it in a way that can engender Chinese participation while not closing off the door to a calmer relationship down the road. Making any additional sanctions temporary could achieve this balance and should be considered.

Authors

Michael E. O'Hanlon

Publication: Politico

Turning Tehran

Suzanne Maloney — Thu, 17 Jan 2013 00:00:00 -0500

Iran — arguably the world’s most dangerous state — presents the Obama administration with an epic threat and a historic opportunity to resolve the nuclear crisis. Suzanne Maloney drafted this memorandum to President Obama as part of Big Bets and Black Swans: A Presidential Briefing Book.

How do current conditions give U.S. diplomacy an opportunity to achieve agreement?
What kind of sanctions relief will Congress need to offer in exchange for concessions?

Download Memorandum (pdf) | Download the Presidential Briefing Book (pdf)

TO: President Obama

FROM: Suzanne Maloney

The persistent and intractable challenge of Iran presents your second term with an epic threat and a historic opportunity. Despite the significant achievements of U.S. policy toward Tehran in the past four years, Iran’s revolutionary regime remains the world’s most dangerous state. Iran continues its efforts to extend its negative influence, inflame sectarian tensions and undermine prospects for peace in a region already beset by instability and upheaval; its support for Bashar al-Assad has enabled the Syrian dictator to brutalize his own people; and its growing stockpile of low-enriched uranium and vast nuclear infrastructure alarms the world. An initiative aimed at resolving the Iranian nuclear crisis offers the biggest potential payoff in a game-changing foreign policy agenda. A meaningful deal with Iran would represent a crowning achievement for your presidency since non-proliferation and nuclear disarmament are central pillars of the global order you are attempting to shape. The spin-off effects of a resolution to the nuclear crisis would significantly advance broader U.S. national security interests in a particularly vital region.

Recommendation:

The following recommendations are proposed as a starting point for a new diplomatic initiative:

• Quickly pursue a stop-and-swap deal to end Iran’s 20 percent enrichment;

• With support from U.S. allies, develop a comprehensive proposal of sequenced Iranian nuclear concessions and sanctions reform;

• Press for an intensified schedule of negotiations with Iran, comprised of an interlinked process of multilateral and bilateral dialogues.

Background:

A binding agreement that firmly constrains Iran’s nuclear ambitions would safeguard the world from the devastating implications of an Iranian nuclear capability, as well as the catastrophic costs of a military strike against the program. It would reassure America’s friends and allies in the region, and enable them to address the profound security challenges that confront them closer to home, such as the domestic pressures for reform in the Arab monarchies and the frozen peace process. It would end the cyclical proclivity for brinksmanship on all sides that inevitably spooks the oil markets and threatens the global economic recovery. And a credible nuclear bargain with Iran would bolster the tattered non-proliferation regime by bringing a would-be rogue back from the brink of weapons status.

For these reasons, you should return to where you began on Iran with a major diplomatic initiative. The conditions are riper today than at any time since the 1979 revolution for making meaningful headway against the most dangerous dimension of Iran’s foreign policy. At a minimum, you approach the challenge of Iran with four distinct advantages over the situation four years ago:

• Thanks to the rigorous sanctions, Iran is experiencing the most severe economic pressure of its post-revolutionary history. Tehran has already lost tens of billions of dollars, and the impact of the restrictions – product shortages, rising unemployment, spiraling inflation, and the collapse of the currency – has been felt at every level of Iranian society. The mounting financial toll, as well as the tangible erosion of Iran’s international stature, has prompted the first real debate in years among Iranian power brokers on the parameters of Iran’s nuclear policy. It remains unclear whether Iran’s supreme leader can countenance a comprehensive shift in the nation’s nuclear course, but the historical record confirms that intense economic pressure induces policy moderation in Iran, albeit only gradually and fitfully.

• The sanctions have been facilitated by unprecedented international cooperation on Iran, especially among the world’s major powers, so that a constructive and durable partnership on Iran now exists with robust consensus on the current approach. After decades of reluctance, Europe is more than willing to get tough on Tehran, and Moscow and Beijing have stepped up to the plate as well. The embrace of punitive measures by some of Iran’s traditional trading partners has helped to bring around the rest of the world, including many states that have historically hedged, such as the Gulf sheikhdoms.

• Today, the longstanding, often brutal Iranian power struggle is effectively irrelevant to the prospects of a deal with Washington. There is no longer any doubt that the ultimate authority lies with supreme leader Ayatollah Ali Khamenei. The internal unrest sparked by the improbable 2009 landslide reelection of Mahmoud Ahmadinejad has resulted in the further consolidation of control by Iran’s hardliners under Khamenei’s leadership. This development is catastrophic for the democratic aspirations of Iran’s citizenry, but leadership coherence probably creates a more conducive environment for a policy reversal within Iran.

• Similarly, American domestic politics present fewer constraints to a bold initiative on Iran than four years ago. The United States has exited one costly war in Iraq and is beginning to wind down another in Afghanistan, and there is no appetite among the American public for another military venture in the Middle East. The failure of the Republican critique on Iran to gain any significant public traction in the 2012 presidential campaign demonstrated that Americans are more interested in economic recovery than new international commitments. As a result, you can assert greater latitude in pursuing a viable deal and pushing back on partisan pressures.

While the odds for engaging Iran on the nuclear issue may be better this time around, the stakes are also exponentially higher. Iran’s nuclear program continues to advance and many observers are convinced that 2013 will mark the point of no return for Iran’s efforts to achieve a nuclear capability. This imparts added urgency to any renewed diplomacy. In the absence of a breakthrough via negotiations, the credibility of your March 2012 commitment to use force if necessary to prevent an Iranian nuclear weapon will be on the line.

As a result, this time around, there is neither time nor utility for a charm offensive: public diplomacy only reinforces the affinity of ordinary Iranians for American culture while exacerbating the paranoia of its leadership. And while Tehran has been signaling for many months that it may be open to a limited bargain addressing a narrow scope of its nuclear activities – i.e. higher-level enrichment intended only to fuel a research reactor that produces isotopes for medical treatments – such incremental confidence building rightly prompts skepticism. Given that the regime’s legitimacy is grounded in its antagonism toward Washington, this approach has been thoroughly discredited by three decades of failed undertakings.

However, the research reactor is the right place to start, if only because of the persistence of its presence in Iran’s own diplomatic gambits since at least 2010 and the need to do something quickly about Iran’s stockpile of 20 percent enriched uranium. A successful start can put more time on the clock for negotiations and provide the grounds for more ambitious understandings. There is broad consensus among many in Washington and in Tehran surrounding the contours of a deal that satisfies both sides’ minimum requirements. Such an agreement would permit Iran to retain modest enrichment capabilities – several thousand centrifuges, operating at less than 5 percent. In exchange, Tehran would have to accept stringent inspections and verification to provide for greater transparency about the entire scope of the program and greater confidence in the ability of the international community to foresee an Iranian breakout. This should include provisions to restrict activities at Fordow, Iran’s underground enrichment facility opened last year near the city of Qom, which the United States has insisted must be mothballed.

To achieve this, you will have to put your credibility on the line, and elevate and intensify the diplomatic dialogue. You will also have to proffer sanctions relief in order to obtain any meaningful concessions on the part of Tehran, despite the strategic and moral disinclination for rewarding Iran’s nuclear transgressions. The sole consistency in Iran’s nuclear diplomacy over the course of the past 11 years has been its transactional approach, and the regime’s insistence on compensation for any concessions has only been strengthened by the escalation in the price that it has paid for its aversion to compromise. Working with our partners in Europe, Russia and China, an interagency effort should develop a persuasive package of specific sanctions relief that is sequenced to clear actions and credible commitments on the Iranian side. The incentives must be more persuasive than the paltry offers the United States has made to date, and at least as inventive as the sanctions themselves have proven, but any incentives must also be provisional or rapidly reversible to mitigate against Iranian ploys and deter dissembling. In addition, you should seek to establish financial mechanisms to facilitate transactions involving humanitarian activities, food and medicine. All of this will require early investments on the part of administration officials in ensuring Congressional support.

Conclusion:

There are, of course, no guarantees. Iran’s Islamic Republic is a persistently unpredictable state, and the animosity and distrust toward Washington runs deep among its relevant decision-makers. The sanctions have weakened Iran’s economy, but consistent with 34 years of Iranian responses to economic pressure, they have stiffened its leadership’s spine, at least for the short term, and increased its paranoia about American interest in regime change. Moreover, the spiraling civil war in Syria and the determination of Iran’s hard-liners to push back against a wideranging campaign of economic pressure and covert warfare may overtake any new diplomatic initiative, and may yet provoke a confrontation that neither side desires. Still, the alternatives to a negotiated deal remain profoundly less attractive than the risks involved in pursuing one, and the prospective payoff – a world released from the perennial nightmare of an Iranian nuclear bomb – is more than sufficient to justify the investment of your time and energy on this issue. And if Tehran is unwilling to engage in a serious fashion, you will have demonstrated American commitment to diplomacy ahead of the other options.

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Authors

Suzanne Maloney

Image Source: © Brendan McDermid / Reuters

The West Now Views Ukraine as a Country that has Gone Off the Democratic Track

Steven Pifer — Sat, 24 Nov 2012 00:00:00 -0500

Editor's Note: In the aftermath of the Ukrainian parliamentary elections, Steven Pifer tells Tyzhden’ (The Ukrainian Week) that the United States and European countries see Ukraine as moving away from a democratic course. This interview is also available on the Tyzhden’ web site in Ukrainian.

Ukrainian Week: Can you comment on the statement from the US State Department and the reaction of other Western countries regarding the Ukrainian election?

Steven Pifer (SP): If you look at how the US State Department, the EU and most European capitals reacted, it was pretty much a sense of disappointment about this election. It is not so much about what happened on Sunday (October 28, the election day – Ed.) because the voting looked like it went fairly well. It’s what happened before, like the abuse of administrative resources, uneven access to the media, questions about the transparency of the Central Election Commission’s operations. And, of course two of the main opposition leaders, Yulia Tymoshenko and Yuriy Lutsenko, were in jail. Compared to the presidential election in 2010 or parliamentary elections in 2006 and 2007, this election was a significant step backwards.

Ukrainian Week: So, now that election is over and the State Department has commented on it, what’s next?

Pifer: I think we will have to wait and see. The Yanukovych Administration had the chance to run a good election and get good marks. Some were ready to say that would have been enough for us to engage Ukraine in a more positive way. That argument can’t be made now because the election process was not seen as a step forward. I think Washington and other capitals will see this as just another piece of evidence of the Yanukovych Administration moving away from a democratic course. It cannot be good for Ukraine’s relations with the US and Europe.

Ukrainian Week: Could you explain the latest statement from the State Department and the resolution from the US Congress and Senate? What do they mean?

Pifer: Both resolutions reflect what the Congress really thinks about Ukraine. Administration officials have said that they are not considering sanctions against Ukraine at this point. However, the most recent resolution put forward by Senator Richard Durbin and approved by the Senate in September, called for visa sanctions against specific Ukrainians. I know that some in Ukraine said that the process was not correct or that it was not legitimate (among others, the Ukrainian Ministry of Foreign Affairs issued such a statement – Ed.). The most striking thing about that was that not a single senator spoke out against the resolution — and the US Congress has been very friendly towards Ukraine for the past 20 years. Now no-one is ready to defend the Ukrainian government. That suggests that the Congress now views Ukraine as a country that has gone off the democratic track. That’s a real problem.

Ukrainian Week: What do you mean when you talk about sanctions?

Pifer: I’d like to make it clear that there is a separation between the Ukrainian government and the Ukrainian people. The resolutions targeted specific individuals who are responsible for the democratic regression that we are witnessing. I think it is still too early to talk about the application of real sanctions by the Congress. What Kyiv should find worrisome is the fact that this conversation was not even being held just a year-and-a-half ago.

Ukrainian Week: Has there been a precedent of applying similar sanctions? The Congress has just passed the Magnitsky Act, but the Senate has not. What does this mean?

Pifer: The House of Representatives voted on November 16 to pass the Magnitsky Act. The Administration had said that it already put a number of people connected to the case on a no-visa list. It did so partly because it would have liked to retain the right to impose this sort of sanction as an administrative decision, rather than as a result of Congressional action. Ten years ago, the US applied visa sanctions against some people from Belarus. So, there have been cases when the US government resorted to this, but it preferred to do so via administrative or executive decisions, rather than through the law. Ukraine is certainly not Belarus so far, but it is moving in that direction. Look at the very negative reaction from Moscow to the talk about applying sanctions in the Magnitsky Act. I think these kinds of sanctions do have an impact. And I think some people in the Congress are ready to use that approach as a potential tool if Ukraine continues to regress from the democratic path.

Ukrainian Week: Besides the election, what else could trigger sanctions?

Pifer: There are many different problems with democracy in Ukraine. One is the conduct of elections – the 2012 parliamentary election and the 2010 local election. In both cases, the processes seemed to be not as good as the presidential election in early 2010 or the parliamentary elections in 2006 and 2007. Another concern is the way that the Constitutional Court just decided to tear up the Constitution it had been operating under for five years, and change it to grant more power to the President. There is also concern about how the Verkhovna Rada has operated, and the arrests of other members of the previous government that are now in jail. That is something that never happened in Ukraine before. Only under this Administration have you had cases where officials from a previous government that lost went to jail. When it comes to charges against Tymoshenko for abuse of power because she allegedly cut a bad gas deal with Russia, the argument in the West would be that that was a political decision and she should be punished for it politically. And she was when she lost the election in 2010. Nobody in the West sees this as a criminal matter. And, certainly, the way the trial was conducted was seen as a farce in the West. No matter how much we are told that this was under Ukrainian legal procedures, this will not persuade the West. I regret to say all this. In 2010, I was one of the people who said that we ought to give Yanukovych a chance. He was elected in a free and fair process back then. He had an opportunity. But, unfortunately, we’ve been seeing consistent regression on democracy. After Yanukovych became president, there was an assumption in Washington that Ukraine did not want to join NATO. It seemed pretty clear that the Ukrainian population was not interested in joining NATO. And that was fine – that was a decision for Ukraine. I think Washington concluded in 2010 that the best way for Ukraine to draw closer to Europe back then was to get closer to the EU. But this democratic regression is making it harder and harder.

Ukrainian Week: How will Obama’s victory affect US relations with Ukraine? Many experts claim that the White House is ready to view Ukraine as Russia’s sphere of influence as a result of the US-Russia relations reboot.

Pifer: I think the Administration of Barack Obama has been quite critical of Russia. The number of statements made by the White House and the State Department concerning democracy developments in Russia within the past four years has been striking. You will probably find more statements by the Obama Administration than you did from the Bush Administration. Ukraine should not only be considered in the context of relations with Russia. Ukraine may be held to a different standard than Russia, for two reasons. One may seem somewhat unfair. When the US is engaged in negotiations with Russia, there are a lot of other really big issues for the US Government, such as arms control, Iran and Afghanistan. In this sense, democracy in Russia is just one of many issues. There are probably not so many big issues on Washington or Europe’s agenda where Ukraine comes up, so democracy may get more attention. That’s not fair to Ukraine. The other difference - this one fair enough - is that Yanukovych has been saying consistently that he wants to join Europe and see Ukraine as a modern European state. So, Ukraine is held to a different standard than Russia, because Ukraine has articulated the goal of joining Europe. Unfortunately, having set that bar so high, the Ukrainian government is falling short of that standard under President Yanukovych. And it may be bad geopolitically for the West if Ukraine aligns more closely with Russia. But that threat doesn’t have any weight in the US or Europe. Closer integration with Russia may be a lot worse for Ukraine.

Authors

Steven Pifer

Publication: The Ukrainian Week

Image Source: © Anatolii Stepanov / Reuters

Are The Russians Ready To Reengage?

Steven Pifer — Mon, 19 Nov 2012 15:21:00 -0500

Editor's Note: In an interview with Radio Free Europe, Steven Pifer discusses the future of U.S.-Russia relations, saying that now that election seasons in both countries have come and gone, there is question as to the degree to which they will be able to reengage and move their relationship forward.

RFE/RL: Before we begin discussing U.S-Russia relations in President Barack Obama's second term, could you give us an overview of relations over the last four years?

Steven Pifer: I think the reset succeeded in the sense that when Obama took office in 2009, U.S.-Russia relations were at their lowest point since the collapse of the Soviet Union. Just go back to the fall of 2008 and the aftermath of the Russia-Georgia conflict, when you had a U.S.-Russia relationship that had nothing but difficult issues and issues where there wasn't a lot of cooperation. And I think the Obama administration made a calculation that improving that relationship would be in the U.S. interest in order to secure Russian help on issues that were important to the administration, such as pressuring Iran, such as access to Afghanistan. And therefore it set about trying to address some Russian concerns in order to secure Russian help on those questions.

And in that sense I think it has been successful. You have seen the new START treaty. You've seen on Iran -- people sometimes forget [that] two years ago Russia supported the UN Security Council resolution that, among other things, imposed an arms embargo on Iran and thereafter Russia canceled the sale of the S-300, which is a sophisticated antiaircraft missile that it had [an] earlier contract to sell to Iran. And the Russians have been very helpful in providing access to American and NATO forces in Afghanistan, which has been important when Pakistan cut off supply lines. So I think by any objective measure, the relationship today is better than it was in 2008, although it is certainly not a relationship that is without problems.

Read the full interview »

Authors

Steven Pifer

Publication: Radio Free Europe

Image Source: © RIA Novosti / Reuters

The Limits of Deterrence with the Islamic Republic of Iran

Ruth H. Santini — Mon, 22 Oct 2012 00:00:00 -0400

At the recent EU Foreign Affairs Council, sanctions against Iran were further strengthened, at the same time re-affirming the validity of the dual track approach and expressing the hope that Iranian authorities will soon decide to re-start nuclear negotiations with the E3+3.

This round follows the sanctions adopted after the EU Foreign Affairs Council of last January. The restrictions mainly target the trade, energy, transport and financial sectors. Great Britain, France and the Netherlands, with the active support of Italy and other EU member states share the conviction that tightening the grip on Iran’s revenues and financial transactions represent the best chance for the international community to push Iran toward a negotiated settlement on its nuclear program and to avoid an external military intervention.

The logic behind Western sanctions targeting several economic sectors (but far yet from being a full trade embargo) in Iran is straightforward: economic and financial isolation, the devaluation of the national currency, the rising inflation and unemployment will increase domestic pressure on the government and lead it either to capitulation in nuclear negotiations or to regime change if domestic unrest will be massive.

When the recession will become unbearable, Western leaders expect Iranians will turn against their leaders and at least partially blame them for the country’s economic decline and chaos.

Read the full article at aspeninstitute.it »

Authors

Ruth H. Santini

Publication: Aspenia Online

Image Source: © Yves Herman / Reuters

China, Iran and the Nexen Deal

Erica S. Downs — Fri, 12 Oct 2012 00:00:00 -0400

The $15.1-billion bid for Nexen Inc. by the China National Offshore Oil Corporation (CNOOC) has triggered a debate in Canada about how far to go in allowing China’s national oil companies (NOCs) to buy into the strategic oil and gas sector. The deal has also aroused some concern in the United States, where Nexen has a tiny proportion of its assets and a few critics have raised the issue of the national security implications of allowing the Chinese to gain an operating toehold in the energy sector.

But those risks and the anti-Chinese rhetoric that has seeped into the presidential campaign obscure an important strategic benefit to the current and any future administration: allowing China’s NOCs into North America provides them with a powerful incentive to stop doing business with Iran.

How to handle Iran’s opaque nuclear program is one of the most urgent and vexing questions facing Washington and its allies. The Obama administration sees squeezing the Iranian regime through sanctions as the best hope for curbing Tehran’s nuclear ambitions short of military strikes. The stakes are also high for Ottawa, which has taken an increasingly hard line on the issue.

Over the past decade, the US-led international sanctions regime against Iran has tightened. The United States has gradually ratcheted up the pressure through the implementation of increasingly robust sanctions on Iran’s energy, shipping and financial industries. These sanctions prescribe penalties for entities that engage in activities such as investing in Iran’s oil industry, selling gasoline to Iran or doing business with the Central Bank of Iran, the clearing house for oil payments. Australia, Canada, Japan, Norway and South Korea and the European Union have also implemented curbs on investment in Iran. The EU has also imposed an oil embargo against Iran and banned insurers and reinsurers from covering tankers carrying Iranian crude.

Meanwhile, China has emerged as the linchpin of the international sanctions regime against Iran. Although Beijing has no desire to see Iran acquire a nuclear weapons capability, it regards sanctions, especially unilateral ones, as an ineffective tool. Consequently, China’s NOCs are the only major foreign investors left in the Iranian oil patch. They remain occasional sellers of gasoline to Iran and large buyers of Iranian crude oil.

Read the full article »

Authors

Erica S. Downs

Publication: Policy Options (Options Politiques)

Image Source: © Jason Lee / Reuters

How the Sanctions Might Hurt America's Potential Allies Inside Iran

Djavad Salehi-Isfahani — Fri, 12 Oct 2012 12:12:00 -0400

The collapse of the rial in Iran's foreign currency exchange in early October was a tipping point — not so much for Iran's economy as for Tehran officials' efforts to deny that sanctions do harm. In a rare moment of agreement, President Mahmoud Ahmadinejad and analysts in Washington blamed the rial's collapse on Western sanctions, even as most of the president's political opponents in Tehran insisted that his handling of the economy — not sanctions — was responsible for the economic mess.

For his part, Supreme Leader Ali Khamenei dismissed the sanctions as "not a new issue" and said that "enemies are making efforts to blow the issue of sanctions out of proportion, and, unfortunately, certain people inside are assisting them."

As a lame-duck president with only six months left in his term, Ahmadinejad is an easy target. But blaming the crisis on domestic policy mistakes is also a way for the more radical politicians in Tehran to continue to deny the sanctions' negative impact and to suggest that the crisis will be brought under control by changes in economic, not foreign, policy.

In reality, both the sanctions and the government's inept response to them have contributed to the country's economic woes. But Western analysts have misjudged the severity of the crisis: Since the rial started to fall, the media has been full of tall tales of hyperinflation, economic collapse, and revolution. Much of this is based on a misunderstanding of how Iran's foreign exchange markets work.

Why didn't Tehran see this coming?

Economic mismanagement in Iran is nothing new. In the past, high oil prices have covered up policy mistakes and prevented economic crises. Oil couldn't save Iran this time, however, because sanctions have taken a large bite out of the country's energy revenues. Oil exports are down about 50 percent this year from their normal level, and they may fall further. Iran has also lost its access to part of its foreign currency reserves, which are frozen in foreign banks.

Iran should have known this could happen. After all, Western governments were not hiding their intentions to tighten the sanctions. The Iranian authorities had ample warning that maintaining the rial as a convertible currency would become infeasible once sanctions began to bite. They could have laid the groundwork for their current multiple-exchange-rate system -- which allows Iran's Central Bank to sell foreign currency at different rates to different users -- long before December 2011, when U.S. President Barack Obama signed the sanctions law that limits Iran's access to the oil market and the international financial system.

Tehran views the multiple-exchange-rate system as the right response to the sanctions. It offers the government, which earns all foreign currency, the tool to manage the economy and contain the political impact of the sanctions. There's logic behind this: The system has insulated the economy from hyperinflation, making its case different from those of other countries that have experienced large external shocks, such as East Asian countries, Turkey, and Zimbabwe.

A tale of two currency markets

Tehran still has tools to prevent the rial collapse from having uncontrollable political effects. The government can limit the devaluation to currencies that are privately traded, selling its own reserves at preferential rates and therefore keeping prices of critical commodities and wages from rising too much. It does not have to print money for its expenditures in tandem with devaluation, which reduces the risk of hyperinflation. Thus a large devaluation in the rial in the free market is much less significant than the same devaluation in countries where the government has to buy its foreign currency from exporters.

The economic signal from Iran's free market is not as significant as people think for yet another reason. Sanctions have segmented the foreign currency market in Iran into two relatively separate parts. One part is for transactions managed by the public sector, which can be conducted on a barter basis, or in the currencies of the countries that continue to buy oil from Iran, such as Indian rupees and Chinese yuans.

The other market is for paper foreign currency and hawala (a system of parallel transactions in two countries), which people use to pay for imports that the government considers luxury goods, to send tuition money to hundreds of thousands of Iranian students studying abroad, to take money out of Iran, or simply to seek protection from inflation. The supply of foreign currency to this market is much tighter than the limits set by falling government oil revenues, so its gyrations do not necessarily reflect the ups and downs of oil exports. Nor is the rial's value in this market relevant for the price of foodstuffs or manufactured items, which the government can purchase with its oil revenues.

The shock to production

This two-tier system hasn't been well suited for the goods that keep Iran's agricultural and industrial sectors running, which constituted about two-thirds of imports. The system's persistence indicates the government's lack of preparedness, which has frustrated Iran's productive sectors for months.

Iran's economy is highly globalized, and most sectors rely on some imported items for production. Sanctions have disrupted the supply chains for these sectors. This summer, a shortage of imported chicken feed caused the first sanctions-related political crisis in Iran. Several hundred ordinary Iranians protested the shortage in Neishabour, a medium-sized city where more than 75 percent of residents voted for Ahmadinejad in the 2009 election.

As a result of sanctions and the government's ineffective response, Iran's industrial production has fallen and thousands of workers either have lost their jobs or are not being paid. Car production, which had increased fivefold in the last decade, was down 42 percent from March to September compared with the same period a year ago, mostly due to a shortage of spare parts. This year, French car producer Peugeot shut down its operations in Iran.

To remedy this situation, the government in late September unveiled its new "foreign exchange center," which allows licensed importers and exporters to bid for foreign currency, mostly supplied by the Central Bank. Approval for access to this center is based on the priority that the Central Bank attributes to the commodity in question.

The new market has introduced a third exchange rate, where the rial is currently trading about 20 percent below the free market rate but twice the official rate reserved for essential imports. This large gap, as well as talk of unifying the exchange rate, fueled speculation that a large official devaluation was imminent -- and possibly caused the value of the rial in the free market to fall 40 percent the same week.

The foreign exchange center has helped producers because they no longer have to compete with speculators and those taking their money out of the country, but it has also sharply increased the power of the government vis-à-vis the private sector -- a risk that critics of Iran sanctions have been warning of for some time.

Why Ahmadinejad won't do the right thing

The blow to the productive sectors of Iran's economy has shrunk output at a time when Iranians are holding record amounts of cash. Liberal spending has expanded liquidity by more than five times since Ahmadinejad took office seven years ago. Too much money is chasing too few goods. Inflation, which was running close to 30 percent a month ago, is now probably closer to 50 percent.

Excess liquidity and high inflation have sent ordinary Iranians in search of safe assets that can protect the value of their savings. As a result, the small Tehran Stock Exchange rose 12 percent last month, real estate has been booming, and gold and foreign currencies have gone through the roof.

An effective way to absorb such liquidity and channel it to productive uses is to raise interest rates, but the government has avoided doing so. Opposition to raising interest rates to fight inflation is partly the result of Islamic teachings that ban interest altogether, but it is also related to powerful lobbies that prefer to borrow cheap from publicly owned banks. One of the first economic actions that Ahmadinejad took when he came to office was to lower the cap on interest rates to 12 percent in the middle of an oil boom, while the economy was overheating. Interest rates have been on average 7 percentage points below the rate of inflation during his tenure.

In a rare concession, Ahmadinejad agreed a few months ago to raise interest rates to 17 percent on one-year deposits, but this was too little too late. With real interest rates in the double-digit negatives, Iranian banks have been losing depositors in droves.

Spreading the economic pain

Despite everything, Iran seems to be weathering the storm better than advertised. Sanctions were intended to inflict economic pain on Iran's population, with the hope that Iranians would persuade their leaders to compromise with the West on the nuclear standoff. But these hopes have been dashed: Tehran may have fumbled its economic response to sanctions and failed to minimize their overall level of pain, but it does seem capable of dealing with their political fallout by managing the distribution of the pain. Its principal means in doing so is the multiple-exchange-rate system, which eases the sanctions' impact on Iranians below the median income -- Ahmadinejad's political base. Meanwhile, the system shifts the burden to upper- and middle-income Iranians, who have shown little affection for the controversial president in any case.

To protect lower-income people, the Iranian government will likely act conservatively in supplying foreign exchange for nonessential needs and make sure that it has enough reserves for critical imports of food and medicine. This will mean the value of the rial in the free market will continue to fall -- but such an event should not be interpreted as a sign of economic collapse.

Ironically, if this scheme succeeds, much of the pain will be borne by upper-income Iranians who are generally most friendly to the West and least likely to revolt, because they have more to lose. They will be the unintended victims of Western sanctions, which have so far proved a very blunt instrument of U.S. foreign policy. Upper-income Iranians have plenty to be upset about with their own government, but now there is a distinct possibility that they will also blame the West for their misfortune.

This is not only unproductive from the point of view of Western policymakers -- but it will also complicate relations with Iran if and when the country rejoins the global economy.

Authors

Djavad Salehi-Isfahani

Publication: Foreign Policy

Image Source: © Morteza Nikoubazl / Reuters

Getting China to Turn on Iran

Erica S. Downs — Thu, 19 Jul 2012 00:00:00 -0400

Over the past decade, as the United States employed increasingly robust sanctions to gradually ratchet up the pressure on Iran to curb its nuclear ambitions, Washington has struggled with the question of how to elicit more cooperation from China, a major buyer of Iranian crude oil and no fan of sanctions, especially unilateral ones. On June 28, the Obama administration granted China an exemption from U.S. sanctions on the Central Bank of Iran (CBI) for significantly reducing its crude-oil purchases from the Islamic Republic. This suggests that one of the biggest carrots Washington can offer to China in exchange for greater support for the U.S. sanctions regimen is expanded opportunities for China’s national oil companies (NOCs) to invest in oil and natural-gas exploration and production in the United States. The greater the stakes that China’s NOCs have in the United States, the thinking goes, the greater the chance they will think twice about doing business in Iran.

The Chinese government responded to the new U.S. sanctions signed into law by President Obama on December 31, 2011, by saying Washington should not expect any cooperation from Beijing. Over the past six months, officials from China’s foreign ministry have repeatedly stated that China’s energy trade with—and investment in—Iran do not violate the various United Nations Security Council resolutions on Iran and that the new U.S. sanctions would not affect China-Iran energy relations.

Despite Beijing’s implication that China would continue to import oil from Iran at 2011 levels (more than 550,000 barrels a day), the main Chinese buyer of Iranian crude oil, Sinopec, responded to the new U.S. sanctions by dramatically cutting its purchases from Iran by 25 percent in the first five months of 2012. At the end of every year, Chinese oil traders negotiate their supply contracts with National Iranian Oil Company (NIOC) for the following year. The commencement of their negotiations in late 2011 coincided with growing support in Washington, especially on Capitol Hill, for ratcheting up the pressure on Iran by subjecting foreign firms that do business with the CBI—the primary clearinghouse for Iranian oil transactions—to U.S. financial sanctions. When China’s oil traders sat down at the negotiating table with their Iranian counterparts, Iran’s increasing international isolation was palpable. Sinopec pushed for lower prices and a longer credit period, while NIOC insisted on higher prices and a shorter credit period. The two companies did not sign a new contract until late March 2012 (with Sinopec reportedly extracting some concessions, which have not been disclosed publicly), causing the plunge in China’s crude oil imports from Iran.

Read the full article »

Authors

Erica S. Downs

Publication: The National Interest

Image Source: Brendan McDermid / Reuters

Burying the Magnitsky Bill’s Message for Russia

Steven Pifer — Fri, 29 Jun 2012 00:00:00 -0400

Congress appears ready to take long-overdue action to graduate Russia from the provisions of the Jackson-Vanik amendment. At the same time, both the Senate and House seem intent on coupling that with passage of the Magnitsky human-rights bill, which would sanction Russian officials involved in the 2009 death of Sergei Magnitsky in a Moscow prison.

Unfortunately, by linking these measures, Congress will obscure the message that it seeks to send the Russian government. The two measures should be decoupled.

Congress passed the Jackson-Vanik amendment in 1974, denying permanent normal trade relations status to the Soviet Union and other countries that restricted emigration of religious minorities. Congress adopted the legislation primarily to press the Soviet government to allow Soviet Jews the freedom to emigrate, something that the Moscow authorities routinely denied.

This changed after the collapse of the Soviet Union. Russia opened the gates in the early 1990s, and Moscow allowed virtually any Russian Jew to depart. Hundreds of thousands did, mainly for Israel and the United States. While Russia has slid badly backwards on democracy issues since Vladimir Putin first became president in 2000, emigration remains unrestricted.

The Clinton administration found Russia to be in compliance with the Jackson-Vanik amendment in 1994. By the end of the 1990s, Russia merited full graduation. The George W. Bush administration made half-hearted efforts to push Congress to adopt the appropriate legislation in 2002 and 2003, but an ill-timed Russian ban on chicken imports and White House reluctance to engage the president directly with the congressional leadership undercut those attempts.

Congress now has little choice but to act. When Russia enters the World Trade Organization this summer, continued application of Jackson-Vanik would mean that the United States is not according permanent normal trade relations status to Russia. As a result, U.S. companies exporting to Russia would not be able to benefit from World Trade Organization tariffs or dispute-resolution mechanisms. Essentially, Jackson-Vanik would then become a sanction on American business.

Congress should now finally pass the legislation needed to graduate Russia from Jackson-Vanik. However, many in both houses propose to do this only in conjunction with passage of the Magnitsky bill.

Magnitsky, a Russian lawyer, disclosed evidence that Russian officials embezzled some $230 million. Incredibly, those same officials were allowed to investigate and arrest Magnitsky. He spent nearly a year in pre-trial detention before dying in prison when his jailers denied him needed medical treatment.

The Magnitsky bill will sanction Russian officials connected with Magnitsky’s imprisonment and death, and other officials in similar corruption cases. It would deny them visas to the United States and freeze any financial assets that they might have in U.S. banks.

Magnitsky’s treatment was abhorrent. The Russian government has protested vociferously against the bill, which demeans the Russian government. The U.S. government has a sovereign right to decide who it will and will not allow to enter into the United States, and who can and cannot do business in American financial institutions.

But linking Russia’s graduation from Jackson-Vanik to passage of the Magnitsky bill is a mistake.

First, linkage will ensure that Washington gets no political credit for finally doing the right thing on Jackson-Vanik. To be sure, the credit would be modest, given Russian frustration that they have remained under Jackson-Vanik’s sanction for more than a decade after they did what it asked them to do. But better late than never.

Second, linking the Magnitsky bill to Jackson-Vanik graduation will wholly obscure Congress’s message to the Russian government. The Russians will not see the Magnitsky bill as an expression of outrage over how the Russian legal system was shabbily and corruptly manipulated to kill one of its fellow citizens. They will instead see the bill as reflecting what they believe to be a deep-seated anti-Russia sentiment on the Hill: the Americans had to give up Jackson-Vanik, so they came up with another piece of legislation to beat Russia with.

Congress is right to act on the Magnitsky bill. But it should not couple that with Jackson-Vanik graduation for Russia. Linkage only buries the message that Congress seeks to send.

Authors

Steven Pifer

Publication: The Hill

Image Source: Denis Sinyakov / Reuters

Sanctions on Iran: Implications for Energy Security

Fri, 29 Jun 2012 09:00:00 -0400

Event Information

June 29, 2012
9:00 AM - 12:30 PM EDT

The Brookings Institution
Falk Auditorium
1775 Massachusetts Ave., N.W.
Washington, DC 20036

Next month, international economic pressure on the Islamic Republic of Iran will intensify dramatically. Although Iran has been the target of various U.S. and multilateral sanctions throughout most of the past three decades, the latest measures are the most severe in history. These actions have been credited with reviving Iran’s interest in negotiations with the world, but they have yet to persuade Tehran to abandon its nuclear ambitions, and are creating new challenges for the international coalition that has sought to constrain Iran. They also pose new uncertainties for energy markets and the international economy at a precarious period in the global recovery and the U.S. presidential campaign.

On June 29, Foreign Policy at Brookings will hosted a discussion assessing the wide-ranging implications of the Iran sanctions regime and considered the prospects for a diplomatic resolution to the Iranian nuclear issue.

Transcript

Uncorrected Transcript (.pdf)

Event Materials

20120629_sanctions_iran

A Slow Chicken Game: Iran and the P5+1 Nuclear Talks

Ruth H. Santini and Aniseh Bassiri Tabrizi — Wed, 27 Jun 2012 00:00:00 -0400

The third round of nuclear talks between the international community and the Islamic Republic of Iran began in April in Istanbul, continued in Baghdad in May and few weeks later in Moscow on June 18th-19th.

All parties, especially the P5+1 (the five permanent member of the UN Security Council plus Germany), acknowledged the extent of the impasse, with a number of expectations raised in Istanbul that, however, led to disappointment in the two subsequent meetings. Given the distance between the Iranian stance and that of the P5+1, it was decided that negotiations would continue only on a technical, rather than political level. The P5+1 has a clear agenda: “Stop, Shut and Ship”. Stop uranium enrichment, Shut the Fordo nuclear facility near Qom and Ship the uranium enriched beyond 20% abroad.

The statement delivered in Moscow by Catherine Ashton, the EU High Representative for the common foreign and security policy, demonstrated that the P5+1 is currently putting more emphasis on the necessity of Iranian compliance with its "international", not just its NPT, obligations (i.e. suspending all its enrichment activities), differently from what came out in Istanbul. Of course, the burden of proof is on Iran’s shoulder, and as for the international community, 20% uranium enrichment lies at the heart of the matter. Agreeing to stop the enrichment and ship the stockpiles of 20% enriched uranium abroad are the main parameters of any agreement proposed by the P5+1. Before the last talks, pressures on Tehran were strongly exerted not just by the EU, but also by Russia and China. So far, to no avail.

This time around, expectations were high not only because previous political-level meetings led many to believe that new steps could be undertaken to overcome the nuclear stalemate, but also because the meeting took place in Russia. The common assumption was that Moscow had managed to secure some bilateral agreement on progress to be made with regards to negotiations with the Islamic Republic. This would have increased Russia’s political capital and leverage vis-à-vis the US.

Read the full article at Aspenia Online »

Authors

Ruth H. Santini
Aniseh Bassiri Tabrizi

Publication: Aspenia Online

Image Source: Sergei Karpukhin / Reuters

EU Sanctions against Iran: New Wine in Old Bottles?

Ruth H. Santini and Aniseh Bassiri Tabrizi — Tue, 06 Mar 2012 14:41:00 -0500

Abstract: Iran is the first country against which the EU has developed a sanctions’ policy out of weapons of mass destruction (WMD) concerns, starting in 2006. In 2010, departing from previous policies, Europe has adopted “comprehensive” sanctions, in addition to targeted ones, taking a toll on the country as a whole and attempting to diplomatically and financially isolate it. Earlier this year, this coercive approach has been further reinforced with an oil embargo, to be fully implemented next July.

The paper examines the old and new sanctions’ legislation, it provides an analysis of the nature of economic relations between European countries and Iran and explores the potential political and economic impact of the oil embargo. It concludes by showing how, despite publicly endorsing dual-track diplomacy, leaving the door officially open to dialogue, Europe is mostly limiting incentives and increasing pressure on the Iranian regime, in line with American political preferences. This very two conditions, however, might hamper any chance for a peaceful settlement of the nuclear standoff and also be a costly policy for European struggling economies.

Read the full paper (PDF) »

Authors

Ruth H. Santini
Aniseh Bassiri Tabrizi

Publication: Istituto per gli Studi di Politica Internazionale

Russia and China Leadership Props Up Syria’s Assad

Daniel Kaufmann — Mon, 06 Feb 2012 13:35:00 -0500

This Saturday the world saw harrowing media accounts of the massacre perpetrated by the Syrian government’s bombardment of civilians in the city of Homs. The massive artillery barrage reportedly left many hundreds of people dead making it the most deadly attack of the year-long uprising. Homs had already suffered from recent violence, but had not previously experienced such a horrific assault on civilians.

On the same day, the United Nations Security Council (UNSC) failed to adopt a resolution condemning the violence in Syria, even though 13 out of the UNSC’s 15 country members supported the resolution. Two permanent members of the U.N. Security Council, Russia and China, sided with Syria’s Assad and exercised their veto power. Leaders in the west, as well as the head of the U.N., some Arab States and Syria’s own civilian groups have expressed outrage at the callousness of these vetoes.

Yet such veto should not surprise observers. The governments of Russia, China and Syria have common interests and protecting the human rights of their own or each other citizens is not high on their agendas. Instead, they share common economic, security and geopolitical interests, including weapons trade.

In Spanish there is a rather telling expression: “Dime con quien andas, y te dire quien eres,” whose literary translation is "Tell me with whom you walk and I will tell you who you are,” yet its spirit is best captured by an English idiom, “A man is known by the company he keeps.”

In terms of standards of political governance, with a few differences aside, the three governments make good companions. Their standards of governance are uniformly low and deteriorating.

China, Russia and Syria’s common misgovernance is compared to the governance standards of other members of the UNSC below (Figure 1). Take first Voice & Democratic Accountability (VA), one of the six dimensions we measure in the Worldwide Governance Indicators (WGI). This Voice & Accountability indicator from the WGI captures the extent to which political rights and civil liberties are provided, human rights are protected, and the extent to which there are freedoms of association, expression and press.

The figure below first shows how low, Syria, Russia and China rank globally in Voice & Accountability—toward the bottom of over 200 countries worldwide. And their governments’ performance on Control of Corruption (another component of the WGI) is similarly subpar.

By sharp contrast, other countries in the U.N. Security Council, which voted in favor of the resolution condemning the violence perpetuated by Syria’s government, perform distinctly better on both Voice & Accountability and Control of Corruption.

Worse—and another reason for why there should be no surprise at the stance taken by Russia and China—the countries’ performance on these important dimensions of governance is not only highly challenged but has deteriorated over the past decade.

At a recent conference on Russia, I presented empirical evidence on the deteriorating governance situation in the country. One chart depicted Russia’s trend in several governance dimensions over the past decade such as Voice & Democratic Accountability, Political Stability & No Violence, and Control of Corruption and is summarized in Figure 2 below. The low and deteriorating level of governance by Russia’s government is not only evident from these indicators, but also from the actions of top political leaders, and in the reaction of its citizens in the form of mass demonstrations against Putin.

Such sharply contrasting performance on national-level indicators of governance and the disparate priorities across powerful countries provides a sobering perspective on the constraints faced by global governance institutions nowadays, particularly the U.N. and G-20.

The power of uncensored data and the voice of domestic and international non-governmental institutions should feature more prominently in an era where some powerful governments are not playing a constructive role in global governance. Nobody knows this better today, and feels the pain of such misgovernance more acutely, than the citizens of Homs.

Authors

Daniel Kaufmann

Are We Sliding Toward War With Iran?

Kenneth M. Pollack — Wed, 18 Jan 2012 14:31:00 -0500

With so much alarming going on in the Middle East, it’s hard to keep track of everything that seems to be going wrong. No sooner had the Libyan civil war ended than another erupted in Syria. Iraq appears determined to follow, and perhaps overtake their Syrian neighbors. Egypt remains locked in a multi-sided struggle among the military, the Islamists and the secular liberals. And disturbing reports of low-level, but growing unrest in Saudi Arabia have begun to emerge.

Amid all of this, the one place that the United States has resolutely marched forward—or perhaps been dragged by the Congress and our European allies—has been in applying ever greater pressure on Iran. But if the Obama administration’s forward progress is clear enough when it comes to its Iran policy, its ultimate destination is not. The sanctions against Iran may well succeed on their own terms while producing regrettable, if unintended, consequences.

The latest salvo against Iran came a few short weeks ago, when President Obama signed into law the new Defense Appropriations bill, in which Congressional conservatives had tucked new, draconian sanctions prohibiting transactions with Central Bank of Iran (CBI), or anyone else doing business with the CBI. The importance of these sanctions is that prohibiting transactions with Iran’s Central Bank would preclude long-term oil sales contracts. If no country were willing to deal with the CBI, Iran would be forced to sell its oil either only to countries and companies willing to buck such U.S. sanctions, or rely on spot market sales for cash—an extremely inefficient method that would cut heavily into Iranian oil revenues. Some analysts, in fact, estimate that this could lead to a reduction of Iranian oil revenues by as much as one-third—and since Iran is heavily dependent on oil revenues, this could have a major impact on the Iranian economy.

Now that would seem to be a good thing, right? Maybe, but maybe not. Certainly the Iranian regime has shown absolutely no inclination to halt (let alone give up) its nuclear program in the face of previous sanctions, which are already having a serious impact on the Iranian economy. The hope is that going after Iranian oil revenues in this fashion would apply so much pressure on Iran’s economy, causing rampant inflation and even economic collapse, that the regime will have no choice but to compromise and accept international demands related to its nuclear program.

The problem is that these sanctions are potentially so damaging that they could backfire, creating at least three sets of consequences that would leave the United States in a worse position, whatever the impact on Iran.

Read the full article »

Authors

Kenneth M. Pollack

Publication: The New Republic

The United States and Iran: Heading Toward Dangerous Confrontation

Marvin Kalb — Wed, 18 Jan 2012 00:00:00 -0500

Confrontations come in different shapes and sizes. Some are avoidable—the one with China, for example, being a prime example. The U.S. confrontation with Iran, however, is one that may spin out of control, if it is not quickly contained. In every confrontation, there is a point of no return, when another provocation, action or inflammatory comment proves in retrospect to have been the trigger that started the war.

Defense Secretary Leon Panetta has warned repeatedly in recent days that Iran would cross a “red line” if it shut down the Strait of Hormuz. One-sixth of the world’s oil flows through this narrow waterway. Translation, if any be necessary: the world’s fragile economy could not tolerate closing the Strait, and the United States would have to act militarily to keep it open; and the secret that is no longer a secret is that once hostilities erupt, the United States, with or without Israel, would seize the occasion to go after Iran’s budding nuclear weapons program. That would be the beginning of America’s fourth war in a Muslim country in the last 11 years—Afghanistan, Iraq, Libya and, if this tumult turned to war, Iran. Is it a coincidence that General Martin Dempsey, Chairman of the Joint Chiefs of Staff, will be visiting Jerusalem this Thursday? Even if he were going there for sightseeing only, his visit in this conspiracy-obsessed neighborhood would touch off speculation of US-Israeli preparations for an attack against Iran.

For its part, Iran, economically wobbly and politically divided, issues its own warnings, the latest just the other day to the oil cartel OPEC against cooperating with Western, meaning American, sanctions against Iran. Such cooperation would mean each member is an “accomplice” in a trade war against Iran, and therefore open to retaliation. “One cannot predict the consequences,” snapped Iran’s ambassador. Ayatollah Ali Khamanei, Iran’s leader, was equally vague and yet threatening. “From now on,” he said, “we will make threats against threats,” whatever that means. At a certain point in any confrontation, actions supersede words in importance. It doesn’t take 20-20 vision to see Iranian muscle-flexing in the Persian Gulf—military maneuvers as the backdrop for showing off new weapons systems, Iranian generals telling American generals that they now have “new guidelines” for military action.

Meantime, Iran continues to move forward on its nuclear program—new centrifuges, new plants, new hints about imminent breakthroughs. Question: is there still a way to cool the crisis through negotiations? President Obama, when he first came into office, extended his “hand” to the Iranian mullahs, hoping to head off an Iranian bomb through negotiations. His overture was rejected. There have been occasional sputtering efforts to open talks since then, but each effort has failed. Now talks seem more remote than ever, though the need for talks increases dramatically every time an Iranian nuclear scientist is assassinated. By Israel? By an Iranian dissident group? Who knows? What seems clear is that Iran is rapidly approaching a point where it can plunge forward and actually build a nuclear bomb, or it can pull back and proceed safely toward a peaceful nuclear program—a decision of monumental importance for Iran and the rest of the world.

Iranian strategy now seems uncertain and tricky. It emits contradictory signals, hints of a desire to negotiate a solution to the nuclear issue mixed with clearly provocative moves suggesting a reckless, diplomacy-be-damned drive toward a nuclear bomb capacity. The Iran leadership seems split between a radical, theocratic, ideological faction, led by the Ayatollah Khamenei, and a slightly more moderate faction, led by the mercurial President Ahmadinejad. Both factions want a nuclear bomb if for no other reason than to prove that Iran is a great power, supreme in its region of the world, like the Persian Empire of old.

The United States and Iran now seem headed toward a dangerous confrontation. This is not a time for the sort of reckless claptrap heard in recent GOP presidential debates. It is a time for caution, clarity and a prayer or two.

Authors

Marvin Kalb

Iran Sanctions Bite, but Will They Work?

Suzanne Maloney — Fri, 06 Jan 2012 00:00:00 -0500

Iran drew the attention of the world last week, with threats to obstruct the export of approximately one-fifth of the world's oil trade in response to harsh new U.S. sanctions against its financial system.

Tehran's long-standing proclivity for bellicose rhetoric muted the impact on energy markets, where oil prices rose only modestly. But the episode highlighted the prospect of a new round of instability and conflict in the Middle East, at a time when the global economic recovery remains precarious.

The Obama administration will implement the new U.S. sanctions gradually over the next six months, with a keen election-year eye on petrol prices and considerable flexibility, at least on paper, to avoid undercutting the global economic recovery.

However, the American measures, combined with a pending European ban on importing Iranian crude, will wreak havoc on Tehran's energy exports, which generate the overwhelming majority of the regime's foreign exchange.

Beyond Europe, major Iranian customers such as Japan and South Korea will co-ordinate carefully with Washington. China is already cutting back its purchases in a bid for considerable price discounts.

For the oil markets, the net effect of the sanctions and the tensions will bring intensified volatility and sustained higher prices.

Repercussions

For Iran, the crisis could be catastrophic. Already, the country's currency has plummeted sharply as part of a decline that has nearly halved its value from a year ago.

The swift and severe impact that the mere anticipation of new U.S. sanctions had on Iran's domestic economy underscores a significant uncertainty that has gone largely unnoticed amid the uproar over Tehran's sabre rattling, namely: will the latest round of sanctions accomplish the objective set out by one of its architects in the U.S. Congress—the explicit collapse of the Iranian economy?

Washington and the world are currently fixated on whether and how the sanctions will reshape Tehran's nuclear calculus, but the repercussions on Iran's economy and society will ultimately have greater consequences for regional stability.

Iran benefits from an incredibly fortuitous endowment of resources, including the world's second-largest gas reserves and third-largest conventional oil reserves.

It also has a young and well-educated population, a temperate climate and strategic location at the crossroads of Asia and Europe, and a historically diversified economic base that has been eroded but not wholly eliminated by reliance on resource rents.

And yet more than three decades of internal upheaval, regional conflict, government interference and mismanagement, and economic sanctions have exacted an enormous toll on this latent economic powerhouse.

The net result has been a profound deterioration of Iran's status in the world economy over the course of the past three decades.

Iranians have watched as their once peer middle-income countries, such as Turkey and South Korea, have rocketed ahead in terms of per capita income, growth rates, productivity, access to technology and foreign investment.

Spending Spree

Over the course of the past decade, as other major energy producers took advantage of the epic oil price hikes to pay down debt and invest in infrastructure, Tehran has gone on a spending spree.

This was in part a means of buying off political dissatisfaction, with billions squandered, much of it on unsustainable import bills.

Iran's current economic morass reflects a number of contributing factors: the legacy of populist economic grievances, factional infighting among the deeply divided post-revolutionary elite, the volume and inherent volatility of resource rents and a deeply contested relationship with the outside world.

Both for Washington and for Iranians themselves, it may be tempting to emphasize the impact of sanctions, if only for political purposes.

The United States trumpets the effect of sanctions to demonstrate that its pressure is working, while Iran stokes the same issue to cultivate international sympathy and dodge responsibility for its disastrous domestic track record.

It is fair to say that these measures, primarily imposed by Washington but broadened over the course of the past five years to include significant international participation, have imposed a high price on Iran's development, particularly its energy sector and access to international finance.

Ultimately, however, sanctions represent one only dimension of an economic landscape that is profoundly problematic.

For decades, Tehran has managed to live with an increasingly draconian array of restrictions on its economic relations with the world through a variety of mechanisms.

These include domestic investment and development, efforts to insulate strategic sectors and vital constituencies, inducements to attract alternative investors and of course smuggling and evasion.

Iranians from a wide variety of political persuasions resent sanctions and frequently express bitterness about the American reliance on a tactic that is more easily evaded by its intended targets in the leadership than the broader population.

But ask any Iranian to name the foremost issue confronting the economy today, and from the highest echelons of the technocracy to the individual on the street, they will denounce government policies as the principal basis of their predicament.

This does not imply sanctions lack impact, but rather that they are merely contributing factors, exacerbating the underlying distortions and official malfeasance in the Iranian economy.

And so it goes with Iran's recent currency crisis. While most of the headlines have linked the slide of the rial to a panic over sanctions, the reality is probably much more complicated and multi-dimensional.

Many Iranians surely rushed back to the black market for foreign exchange out of concern over the sanctions or the prospect of conflict, as was the practice for the first two decades of the revolutionary regime prior to the official unification of the exchange rate a decade ago.

However, the resources at Tehran's disposal are more than sufficient to stabilise the currency, at least temporarily, and its handling of the crisis suggests the regime saw some benefits in an abrupt devaluation.

Government revenues from any continuing oil exports will go further in the local economy, while higher import prices will quickly curb the flood of imports, mainly from Asia, that have ravaged domestic production in recent years.

Still, the scope of the measures targeting Iran's crude exports will take an enormous toll on the regime's revenue stream.

As is often the case with the Islamic Republic, the price of the regime's standoff with the West will be paid disproportionately by the Iranian people.

Authors

Suzanne Maloney

Publication: BBC News