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July 28, 2017

Xander Snyder and Jacob L. Shapiro talk about the geopolitical consequences of new U.S. sanctions against Russia, North Korea and Iran. Click here to sign up for free updates on topics like this.

Jacob L. Shapiro: Hello, everyone, welcome to another Geopolitical Futures Podcast. I’m Jacob Shapiro. I am joined once more by Xander Snyder. Xander, it’s always good to talk to you.

XS: Thanks, good to be here.

JLS: We’ve been trying some different things with the podcast in the last couple weeks. Last week, Kamran and I had a little discussion about democracy and geopolitics. We appreciated all your feedback on that. Before that, we were doing some talk about history and battles and geopolitical contingencies.

This week, we’re going to go in a little bit of different direction. We’re going to just try and take a sense of what’s been going on this week in geopolitics in 30 minutes and try and talk through some of the major issues and the things that have happened this week that might actually have staying power beyond the week itself. Because some many of the things itself, so many of the headlines and the things that happen in the news really don’t matter that much once the headline is out there. So we’re going to try and get to the deep stuff that we think is going to matter in the long term.

And the major thing I think, Xander, that really affected this week was not just the House but the Senate also apparently has just passed sanctions not just on Russia – although that’s getting most of the attention – but also on North Korea and also on Iran. Just this morning as we’re recording before we went live, I saw that a bunch of different news organizations were reporting that North Korea also tested some kind of missile this morning too. We don’t know whether it was an ICBM or something else. But it seems to me the real magnetic issue of this week has been sanctions, would you agree?

XS: Yeah seems like a lot has been revolving around sanctions this week. And very quick timeline of it is back in mid-June, the Senate overwhelmingly approved some form of sanctions and then it kind of got negotiated between the House and the Senate for another month. And then the House earlier this week passed sort of a new and improved version that both houses had agreed to by I think it was like 419 to 3, an overwhelming majority, and then the Senate passed it again with an overwhelming majority of like 98 to 2.

And one of the big changes in the new version of the sanctions bill – well compared to the sanctions that were passed against Russia in 2014 when Russia invaded Crimea and took control of that area of Ukraine – basically ties President Trump’s hands in a lot of ways. So the way that some of these clauses were phrased in the original sanctions bill was saying the president “may” choose to implement one or several of the different measures that are provided for in the sanctions bill. And in this new one that just passed both houses essentially an amendment was proposed that changes the word “may” to the word “shall,” so the president shall implement all of these sanctions.

And what that does is it removes a certain degree of power from the president to decide who sanctions who or what corporate entity sanctions are going to be levied against. And it also reduces his ability to issue waivers against individuals or individual entities that do have sanctions levied against them. So that’s just kind of like the starting point for how a lot of activity has revolved around these sanctions over the last week.

JLS: Yeah, I think one of the interesting things to point out is that both President Obama and President Bush tried to really reset relations with Russia in a more positive direction. That was definitely something Trump wanted to do as well. And Trump has encountered the same types of geopolitical obstacles externally that both Obama and Bush did. I mean, there are just interests that are divergent between Russia and the United States and no matter how much Putin and Trump may or may not like each other, those issues seem to come to the forefront.

But Trump also seems to have on top of that, a domestic situation in the United States that is blocking him from doing anything even in some of the foreign policy realms, right? You talked a little bit about how it’s enforcing and making Trump raise a bunch of sanctions that were only there through executive order in which he had some options with. But so Congress is basically forcing his hand in that bit.

But there are also some parts of the sanctions that relate to energy and I know that you did a closer look at some of the energy-related stuff, especially in terms of where Russian energy goes, so do you want to talk a little bit about that?

XS: Yeah, I think the point that you make speaks to one way that we look at the world, which is leaders always encounter constraints and frequently they encounter constraints that they were not anticipating on the campaign trail. So they’re able to use boastful rhetoric and you know say almost anything that they want to. Either not realizing or maybe recognizing but not playing up the fact that they’re not nearly going to be able to do as much as they say they’re going to when they get into office. And this has just been sort of another one of these constraints in the foreign policy world that Trump has run into when he’s been in office.

Now, the European Commission and Germany in particular have taken umbrage, they’ve been a little concerned with the set of sanctions that were passed this week. This is because the sanctions bill provide for measures to be taken against companies with residents in any country really that have a certain degree of involvement with Russian energy companies, and I think the threshold is something like 30 percent investment in a joint venture project. Antonia, one of our senior analysts, wrote a Reality Check on that earlier this week in a little bit more detail so you can go read up on that there.

But the idea is that since the sanctions can potentially target companies that are not Russia, and Germany has some energy projects that they’ve co-invested with Russia because Germany gets a lot of their both natural gas and oil from Russia but especially their natural gas. And now they’re concerned that potentially both their companies and potentially their energy securities to a certain degree can be threatened by these sanctions. And they’re saying, “Well, you know, the U.S. shouldn’t have the right to target non-Russian companies when the point is to go after Russia with these sanctions.” So that’s been one of the other issues that’s kind of arisen surrounding the sanctions bill.

JLS: Yeah. And I think one thing to point out there is that the sanctions themselves I don’t think are the major story. Sanctions have been levied a lot of different times by a lot of different countries and I wrote a piece the other day that sort of talked about how sanctions are usually, not always but usually a fairly ineffective obstacle. It’s not the sanctions so much that are interesting. I don’t think the sanctions are going to compel Russian behavior one way or another. It is though I think from the Russian point of view, a provocation.

So especially with the sanctions that are being levied against Russia in this particular case, Russia’s not going to be able to not respond in some kind of way. And we’ve already seen in the last couple days, I would call it weird stuff happening in the Ukraine. Just electricity being cut off to one region, the stuff about Saakashvili, the former president of Georgia who became a Ukrainian citizen and was a governor of Odessa in Ukraine. His citizenship has been revoked. There have just been some signs that Ukraine seems to be feeling a little bit more willing to push back against Russia.

And of course, the big thing was that the new special representative to Ukraine that the State Department appointed suggested that the United States would look into arming Ukraine with defensive weaponry. So all of those things mean not that sanctions are going to do what the United States wants necessarily. I think Russia is going to perceive this as a challenge and Russia’s going to have to try and push back if not in the Ukraine, probably somewhere else along the periphery and I think that’s why this issue is going to be important going forward for a while.

XS: Yeah just before I hopped on to do the podcast, I was reading that Russia has begun to retaliate a little. They’ve basically begun kicking out some U.S. diplomats and reduced the number of U.S. diplomats in Russia to the number of Russian diplomats in the U.S. which was fewer and have begun to seize some U.S. diplomats’ vacation properties and some warehouses I guess that were used to store U.S. diplomats’ goods.

So that’s something sort of short term but another way you can look at sort of Russia’s flexibility in terms of how they can retaliate in a larger way, I mean one way you could look at that is in the energy world because a lot of Europe is dependent on Russia for its supply of energy. Europe imports really a lot of its energy needs. I think Germany in particular imports approximately 60 percent of its energy consumption. And something like 55-plus percent of its natural gas consumption comes from Russia. So there is some deeper structural dependencies on Russia in the energy market that actually gives it the ability to retaliate at least against U.S. allies in a somewhat more serious way than just kicking out a couple of diplomats.

JLS: Yeah, absolutely. Moving on from Russia, though, Russia is not the only player in the sanctions regime. I think that it’s getting the most attention because of the complicated and convoluted relationship between Donald Trump and Russia and the United States, but the bill originally was not designed as a sanctions bill for Russia. It was designed as a sanctions bill against specifically Iran. And you know both Russia and North Korea were things that were added on later. Iran and North Korea are both countries that the United States has been having trouble with for a long time and has been trying to use sanctions with for a long time. And it seems that Congress is trying to reinforce that method but I’m not sure it’s going to work.

You know Iran really was able to come to terms with the United States not so much because of sanctions I think but really because the Islamic State rose and broke Iranian strategy. And Iran really had to measure what was the more important enemy and I think that they prioritized defeating the Sunni Arab force in the Islamic State over basically the nuclear program that they were developing and when you see Iran testing and still using missiles. I don’t think they’ve necessarily abandoned that program. They may not be enriching uranium and I think they are probably abiding by the terms of the deal. But that doesn’t mean that they aren’t working on other parts of a delivery system.

And on top of that we have North Korea which seems to not be going away and I know that a lot of listeners probably have been hearing us talking for a while about how the situation in North Korea is deteriorating and the tensions are high. But we continue to see it that way. You know, I think one of the things that we’re doing is there’s probably some kind of negotiation or diplomatic process going on there. And you know, I think there’s a lot of misdirection coming out of the U.S. right now. On the one hand, you get the three carrier battlegroups there. Then the carrier battlegroups disperse and you have the U.S. Chairman of the Joint Chiefs of Staff saying, “We’re going to give the diplomatic route a couple months.” And we’ll see from that so. You’ve looked a lot at North Korea, Xander, what is your sort of current read on U.S. posture towards North Korea and how do you see it going forward in the next couple weeks after this test, especially if it turns out to be an ICBM that was tested?

XS: Yeah, we are still waiting on confirmation on whether it was or not. If this most recent launch was another ICBM, that would appear obviously a lot more threatening because it could potentially show that North Korea is making progress on developing a delivery system that could potentially deliver some sort of nuclear warhead. We don’t believe that they’re there yet even though they may have missiles that can fly further now as we saw earlier this month.

As far as North Korea generally goes, sanctions like you said they generally don’t work. When we say generally, we don’t mean never. I think you cited a report from the Peterson Institute in your piece that said something like two-thirds of the time sanctions prove ineffective. And North Korea has been sanctioned repeatedly for 20 years and all we’ve seen them do in that time is basically start a nuclear weapons program, develop it, get to a point where they are very close to, you know, within a year or two having some sort of miniaturized nuclear warhead, potentially having intercontinental delivery capabilities.

So sanctions just don’t really seem to work a whole lot about North Korea and if you try to put yourself in the mindset of the North Korean regime, it kind of makes a little bit more sense. You know, a lot of people think that Kim Jong Un is just crazy and that the Kim regime is insane, that you know it’s this terribly oppressive autocratic regime, and it is an oppressive autocratic regime. But a perspective that doesn’t get out there as frequently, is that this is a regime that’s been around for 70 years. They’ve withstood the collapse of their biggest patron, the Soviet Union, for several decades. And they’ve gotten through increasing pressure placed on them from the United States and arguably China recently, although those numbers are a little bit harder to read.

I think it’s difficult to claim that a regime that’s been around and has stayed stable for that long is truly insane. They have to be acting at least to some degree rationally. And if you look at the effects or lack of effects of sanctions on North Korea, you know, the regime believes that it is at constant threat from the United States and if it gives on some of the things that the United States wants it to give on, that it’s going to be at even a greater risk of if not collapse then losing its control on the governing institutions in North Korea. So for a regime that feels completely threatened for survival, it seems like sanctions are, they’re going to be more willing to just accept that their country will be hurting than to just give up control, give up reins of power on their country.

JLS: Yeah, and I think that the other side of this is that sanctions are probably not going to compel North Korea to give up its program. Like you said, if they haven’t given it up already with the sanctions that have been levied against them, it’s doubtful that this new batch of sanctions is going to be the one to do it. But I think the other thing that this brings up is that everybody is wondering what is China’s role in helping manage North Korea and how much can they actually do?

And one of the things that we looked at this week was new data out of Korea that said that while Chinese imports from North Korea have decreased by about 25 percent year-on-year, their exports to North Korea have gone up quite a bit, almost 20 percent that way. And so that’s not a new thing, we’ve seen data from China itself confirming that earlier in the year and Donald Trump even tweeted, you know, about how China wasn’t living up to its end of the bargain in terms of taking care of North Korea.

But I think this is a good way of showing also the sort of ineffective logic of sanctions because, OK, so you’ve sanctioned North Korea, but the hard thing with sanctions – it’s also the hard thing in getting something like an OPEC agreement to work – is making sure that everybody does it in the exact same way. The problem is that everybody doesn’t have exactly the same interests. So you can’t necessarily expect everyone to carry out the sanctions the same way or to be completely 100 percent consistent.

So maybe China, it’s dealing with North Korea in the way that it’s dealing with it, perhaps not in the way that the United States wants. Are you just going to go and sanction China then? Like where does it stop? The problem at the end of the day is that North Korea is developing a nuclear weapon that can strike the United States. And you can sanction North Korea all you want and you can sanction China all you want, you know, unless those sanctions are going to compel someone to stop developing a nuclear program or are going to compel China to do something to stop North Korea from developing that program ­­– and I am not convinced China can do anything to stop that – it’s not really going to work, right?

XS: It seems unlikely, yeah. One thing that we are focused on that we’ve talked about before, certainly internally, I think maybe we’ve written some Watch List items on it, is whether or not the United States will be effective in obtaining sanctions on imports of crude oil to North Korea. Late last year, there were sanctions placed on North Korean coal exports to China, and that was seen as a significant or at least sort of a milestone in the development of the sanctions regime against North Korea because that’s one way that North Korea receives a lot of hard foreign currency from abroad.

But it seems like their supply of crude oil hasn’t technically changed that much, and Tillerson mentioned a couple weeks ago that that’s one thing that they would be seeking through conversations with China. But North Korea, there’s some reports, some data that seems to indicate that they get a lot of crude oil both from China and Russia. It’s hard to know because those numbers are no longer officially published by China and I don’t think they’ve ever been officially published by Russia so they come through like North Korean defectors who supposedly have been dealing with imports from Russia.

So that might be one area of sanctions where, if somehow the U.S. could pull that off, it might change the game a little bit because it could impact North Korea’s ability to wage a conventional war. But there’s no reason, or I can’t see any reason at least, why China would get in line behind that or certainly why Russia would. It seems like they would want to extract pretty significant concessions from the U.S. in other parts of the world in order to actually implement a sanctions regime like that.

JLS: Yeah, and then of course, the last piece to the puzzle of these sanctions here is Iran. And I think Iran has fallen a little bit by the wayside in terms of people’s attention and in terms of even the U.S. attention. You know, before he was secretary of defense, James Mattis was very, very focused on Iran in general when he was thinking about U.S. foreign policy. And I think that Iran is going to become more and more of an issue for the United States. I think the Middle East is going to become more and more of an issue for the United States, not necessarily because of Iran itself but because the battle against the Islamic State is progressing. I don’t think that it’s imminently over. I think the Islamic State is going to stand and fight for quite a while longer. But you can sort of begin to see the end game for the Islamic State and for defeating this particular iteration of the Islamic State.

And I think that you’re not going to get peace out of that. What you’re going to get is that the coalition that formed against ISIS is going to break apart and there’s going to be a lot of power vacuums all over the Middle East that different countries are going to be looking to fill, and I think Iran is the one that is most aggressively pursuing those things. So we’ve had a couple years here with a very uneasy understanding between the United States and between Iran. I don’t expect the nuclear deal to fall apart anytime soon or anything like that. And like I said, I think we’re still looking at another year maybe two of the Islamic State being a major actor.

But I think if you start thinking about the Middle East five years, 10 years out, and you think about what’s going to happen once the Islamic State loses some of its what core territory is left remaining to it. Iran and the United States don’t see eye to eye in the Middle East. The United States is trying to reconstruct a balance of power there and Iran is trying to set itself up as a regional hegemon. It is expending a lot of money and a lot of even its own soldiers in Iraq, in Syria, even in Lebanon with its relationship with Hezbollah to try and make that come to fruition.

So I don’t think that these sanctions themselves will be that consequential in terms of the relationship between the United States and Iran, but I think that relationship overall is probably trending in a negative direction. I don’t think that we should think for a moment that just because the nuclear accord happened a couple years ago, that things are going to stay rosy there.

XS: You mentioned a couple of minutes ago that your of Iran’s acquiescence to the nuclear accord was not due to the prior sanctions regime implemented by the U.S. but rather the regional challenge it faced by a potential Sunni leader, ISIS. Could you explain a little bit more what you mean by that?

JLS: Sure, and I don’t want to fall into the fallacy of saying that one thing is the most determinative or deciding thing, right? Like obviously all these things were working in concert together. And I do think that the sanctions that the U.S. carried out against Iran in 2010, they certainly hurt the Iranian economy. We have plenty of evidence in terms of shrinking GDP and people not buying Iranian oil across the board that indicated that Iran’s economy was hurting and that average, everyday Iranians were hurting.

Again, though, when you have a country like Iran that has for so long been a U.S. enemy and frankly has some reason to think of the U.S. as an enemy. The U.S. was involved in trying to – I mean, not trying – helped a military coup in Iran in 1953. This is not a country that has a reason to trust necessarily United States motives. So I am saying that to say in the same way that we were talking about North Korea and we’re saying, “Well, are sanctions really going to affect a regime that has already sacrificed so much and which has such a level of sort of autocracy and dedication in the population itself?”

I sort of see Iran the same way. Iran is a very proud country with a very well-defined national identity, and I don’t think that Iran is going to bend just because the United States or the West even is trying to make Iran feel things economically. I think what Iran did was, I think that before 2010, they saw a very real chance of extending their influence from Tehran all the way to the Mediterranean Sea. Iraq was in shambles and that’s a majority Shiite Arab country, so they thought that they could dominate there.

You had Syria, which was under the control of Bashar al-Assad and that was another Iranian – I don’t want to say client state, but another Iranian ally in the region and definitely looked towards Iran for guidance and money and things. And then you had Hezbollah, which had basically taken over large parts if not all of Lebanon and is that rare militant group that has gone from militant group to governing group, and has done that fairly well. That was the story in 2010.

There was an arc of Shiite influence going to the Mediterranean and things looked very good for Iran. That all fell apart because ISIS rose in Iraq and significantly challenged the Iranian idea of stability there. Bashar al-Assad faced rebels in his own country, which ISIS eventually came to capitalize on. Brought Hezbollah into that fight, so Hezbollah can no longer focus on annoying Israel or doing any of the other proxy things that it does. It’s committed to almost a conventional-style war in Syria.

So you had all of these strategic things just fall apart on Iran, and you have to understand that for Iran, it’s Iran’s Ukraine, basically. You know we talked earlier about how Russia has such a deep interest in Ukraine. Iraq and the state of things beyond the Zagros mountains in that direction is the same type of thing for Iran.

So I think sanctions played a role, and I think sanctions hurt the Iranian economy, and I think it would certainly be hard for Iran to go back to where it was before. We’ve seen very high GDP growth numbers out of their economy, and I think that both Iran and some of the Western companies that are partnering with Iran would make real sanctions hard to enforce.

But overall, when I look at the deciding factors over why that deal had to be made, the United States decided that it needed to defeat ISIS and it needed to defeat ISIS first and then it could deal with other problems later. And I think Iran sort of saw the same thing. They were worried about ISIS not just taking over Syria and knocking out one of their client states along the way to the Mediterranean but also significantly threatening Baghdad, and it’s not an idle threat and it’s not something that they were imagining. I mean Saddam Hussein – the Sunnis were ruling but it was not only a secularist regime – but the point is that was Iran’s mortal enemy. They fought one of the worst wars that’s not talked about I think in the 20th century between 1980 and 1989.

So that’s kind of what I meant about that. I think that the United States and Iran, the sanctions stuff is all surface level. The deeper problem there is that the United States wants a balance of power in that region, and Iran wants to be the power in that region. And for as long as that’s the case – and I don’t see that stopping anytime soon – they are going to butt heads, and sanctions aren’t going to do anything to change that underlying reality.

XS: So despite these conflicting long-term divergences in national interests, countries can still find ways to cooperate on short-term security interests?

JLS: Yeah, absolutely. I mean the United States and Russia are definitely at odds against each other in Ukraine. They’re tacitly cooperating in Syria. I mean that goes underreported, I think. I mean there’s no way that the United States could have the assets running around that it does in Syria and Russia could have the assets that has running around in Syria and there not be some level of coordination. And when we look at the U.S.-backed forces in the region, especially the Syrian Kurds and the Syrian Democratic Forces, and we look at what the Syrian Army is doing, which is backed by Russia, you can see a coherent strategy of basically trying to cut the ground out from underneath ISIS. And sure maybe there’s not a formalization or maybe they’re not having tea and cookies in the afternoon together, but there’s definitely some level of communication between the United States and Russia on that issue.

So yeah, it’s very rare that you have a relationship between two countries that is just totally hostile and has no bounds for cooperation. I would say one example, though, of where there isn’t a lot of – there’s really no grounds of cooperation that I can think of between North Korea and the United States. Can you think of anything there?

XS: I mean not really. North Korea’s core security imperative is to deter an attack from the United States, which requires developing a weapon which would violate one of the United States’ core security imperatives, which is keeping North Korea from having a deliverable nuclear weapon.

JLS: And I mean one of the results of North Korea being such a closed regime to the rest of the world is that North Korea really does not on a global stage have a lot of power that it can play with or bargain with, right? There’s nothing that North Korea can do for the United States in East Asia if the U.S. did want to make some kind of deal. Whereas Iran is a powerful country and has power over a lot of different actors that the United States sometimes has trouble interacting with.

In that sense, Iran is much more like China. China is trying to present itself as an actor that can help the United States or can find common ground with the United States so the United States should cooperate with it. North Korea doesn’t really function that way. North Korea really is shut off and is really crouched into a defensive posture. Mostly because I don’t think there is any other real way for them to do it. And in some sense, they’ve succeeded. They have created a situation that is incredibly difficult even for very powerful countries like China and the United States to deal with.

XS: So if you’re interested in this stuff, we’ve written a lot about sanctions but really about how sanctions sit on top of a lot of deeper, underlying structural causes for why we see nations acting the way they do. We’ve written a lot about that this week. You can check out the RC that Jacob you did yesterday. Antonia published one on sanctions earlier this week. I will be having a piece that will analyze Europe’s energy dependency on Russia and perhaps give some sense of how Russia could retaliate there and that will published on Mauldin Economics, our partner’s website, on Monday. And that should give you a bit of a deeper understanding of what’s really going on behind these sanctions.

JLS: Yeah, and I think it will be an interesting exercise of maybe 3-6 months from now, Xander, we sit down and we start a podcast and we see where these sanctions are and what impact they’ve actually had over the course of the last 3-6 months.

XS: Let’s do it.

JLS: Yeah. On that note, thanks, everyone, for listening. We’re glad you are enjoying the podcast, we will catch you next week. See you out there.

 

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