US rethinks sanctions approach

President Joe Biden's administration is reviewing US sanctions policy with a view to restoring the use of sanctions as an element of diplomacy, after concluding that its predecessor's "maximum pressure" approach against Iran and Venezuela has achieved little to no political results.

Russian state-controlled Gazprom's 55bn m³/yr Nord Stream 2 pipeline to Germany is the first test case of this more flexible sanctions practice. Biden's administration has waived sanctions that Congress mandated against the nearly complete project and instead negotiated an arrangement with Germany that Washington says will ensure Nord Stream 2 is not used to fully cut off gas transit through Ukraine. Under the deal, Berlin will appoint a special envoy to help Ukraine's state-owned Naftogaz negotiate with Gazprom to extend their 2020-24 transit agreement and set up a $1bn fund to finance Ukraine's energy transition process.

US officials argue that their approach will work better than slapping sanctions on the project. If sanctions had been applied, the pipeline would have been completed anyway because the project company has switched to using Russian-flagged and owned vessels to install offshore pipes. The US could have applied sanctions against regulators and other entities in Germany to prevent the line from starting operations, causing a rift in relations with Berlin. But opting for a diplomatic resolution instead addresses concerns about Nord Stream 2 without the need to apply sanctions, US officials say.

The White House is also taking a measured approach to imposing sanctions against Myanmar (Burma) after the military coup, and against Belarus, to protest against a security crackdown in the wake of last year's disputed presidential election. In both cases, opposition activists from those countries and members of Congress have pushed the administration to apply sanctions against key state-run companies, including in the energy sector — namely Myanmar Oil and Gas and Belarus' 323,000 b/d Mozyr refinery. The Biden administration has not addressed those demands yet — it has been gradually rolling out stringent economic measures in an effort to leave room for further escalation.

Penalty kick

Current and former US sanctions officials have criticised the practice of imposing sanctions as a purely punitive measure under Trump, arguing that economic penalties work best when the targets have an incentive to reverse their actions and when sanctions can be easily rescinded. Another problem associated with the "maximum pressure" approach is that it leaves no meaningful way to respond when the target government finds a way to bypass sanctions, or does not respond to them in a way that Washington expects.

Iran, by late 2020, was able to make use of its fleet of tankers to deliver crude to China in contravention of US sanctions, with the US struggling to respond, short of seizing tankers by force. "The credibility and strength of US sanctions depends on their effective implementation and enforcement," says nominee for assistant treasury secretary Elizabeth Rosenberg, who will oversee the US sanctions programme. The Biden administration has more room for manoeuvre in crafting its own sanctions programmes than in rolling back existing ones.

Lifting sanctions against Iran is tied to the success of nuclear talks with Tehran. Six months into office, the Biden White House has made only one modest change to the Venezuela sanctions. Even so, it faces strong opposition from Congress, where members of both parties remain steadfast in defending strong sanctions against Russia, Iran, Cuba and Venezuela, despite their low success rate.

By Haik Gugarats