Do Sanctions Still Work?

0:00Hey everyone, it's Jess. And Ryan. Before we get to today's episode, we're here to announce that we're planning our third live show. This time we'll be back in New York City. We'll be at the City Winery on Wednesday, September 9th. We've got special guests lined up, sharp reporting, insider conversations, all the kind of stuff that hits different when you're in the room for it. Also, Ryan and I are going to stick around after the show to hang out and meet you all, which really is our favorite part. Tickets go on sale this Friday, July 24th at 10 a.m. Eastern. Head to bit.ly slash journalnyc. That's bit.ly slash journalnyc.

0:40And we'll drop a link in the show notes too. So get a ticket or two or three or five. Or 10. Or 10. Bring your mom. And come hang out on Wednesday, September 9th in New York City. Hope to see you there.

0:59A day before Senator Lindsey Graham died, he was in Kyiv, the capital of Ukraine. I'm pleased to announce, as of about 30 minutes ago, we've reached agreement with the White House on a version of the Russian sanctions bill. It was Graham's last public appearance and his last push on a sanctions bill that he had led negotiations on for over a year. So when I get back to Washington, I'm going to go with Senator Blumenthal to the Republican and Democratic leader to see if we can find time to move this Russian sanctions package that would give tools to President Trump to help end this war. If it passes, the bill would be the U.S.'s latest attempt to use sanctions against its enemies, a tactic the U.S.

1:48and its allies have leaned on a lot in recent years. The toughest and most comprehensive multilateral sanctions that the Iranian government has ever faced. Our new executive order will cut off sources of revenue that fund North Korea's efforts to develop the deadliest weapons known. We're implementing full blocking sanctions on two large Russian financial institutions. I'll be signing an executive order imposing hard-hitting sanctions on the supreme leader of Iran. I mean, very simply, sanctions are about economic warfare. It's economic statecraft. It's about using your economy and your weight financially to force someone else to do something.

2:33Our colleague Rory Jones has been covering sanctions. Over the last 10 years, you've seen sanctions, annual sanctions by the U.S. increase from about 800 roughly in 2017 to like 3 ,000 in 2024. But whether they're effective or not is very much still up for debate. At the moment, what you aren't seeing is you aren't seeing a lot of the US enemies change their behaviour. The Iranian regime is still in place. The North Korean regime is still in place. Russia is still fighting a war against Ukraine. If you talk to sanctions experts, what they're saying is that the way in which sanctions are imposed and the way in which sanctions are enforced just doesn't add up at the moment and isn't producing the results that Washington wants to see.

3:33Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Wednesday, July 22nd.

3:46Coming up on the show, Washington continues to ratchet up sanctions. But do they still work?

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5:14On a sunny day in June 1990, Nelson Mandela joined President H.W. Bush at the White House. It is a great pleasure, a sincere pleasure for Barbara and me to welcome to the White House Mr. and Mrs. Mandela. Mandela had just been released from prison by the apartheid regime in South Africa. In our meetings this morning, he and I will talk about the future of South Africa. And it is my sincere hope that these talks will be productive, discussions that will contribute to positive change toward true democracy. and the dismantling once and for all of apartheid. A few years later, apartheid fell. The apartheid regime in South Africa was under cultural sanctions, it was under a boycott globally, and the U.S.

6:08also imposed sanctions in the 80s. Everyone agrees that the economic sanctions, along with cultural boycotts and arms embargoes, all of that contributed to a change in government in South Africa and a change of behavior. The promise of sanctions and other economic tools were celebrated in the 1980s and 90s as a way to use global capitalism for good. Why sanctions are often a first tool that Washington and other governments use is because they don't want to commit to a military operation or to even risk at times a military operation. So economic warfare and sanctions are often viewed as a way to try to avoid conflict and try to push a particular country to change before you actually have to go to war.

6:58Sanctions can also be a way to try and end a war. For instance, the U.S. has sanctioned Russia repeatedly for its aggression against Ukraine. These sanctions have included travel bans, frozen assets for many Russian oligarchs, and restrictions on oil exports. There's also been sanctions on North Korea and that are aimed at trying to stop North Korea's nuclear weapons program. Cuba has been under sanctions for decades and Venezuela also is under sanctions.

7:31But unlike South African apartheid in the 90s, all of this economic pressure hasn't helped lead to regime change or achieve Washington's other major goals. For example, despite sanctions, North Korea still has a robust nuclear program. In Venezuela, Nicolas Maduro survived sanctions for over a decade and was only removed when U.S. forces physically dragged him from power. And while Russia's economy has suffered since it began its Ukraine invasion, that hasn't stopped President Vladimir Putin from continuing the war. And so you have these examples of where, currently at least, where sanctions just haven't or don't appear to be effective.

8:11But I mean, these sanctions are having an impact, right? In the sense that they are making life harder for regular people in those countries. Yeah, there's no doubt that sanctions have an impact on the ability of these countries to earn revenues and to move money around the world and to allow their economies to function. But there's also a collateral damage. There's also a cost for, as you say, the regular Iranian who is just trying to keep their kids in shoes and their mouths dead. and there's clearly an economic cost for the regular people in these countries because they're not getting access.

8:51They don't have access to the globe in the same way. So then why haven't these sanctions led to regime change? Broadly speaking, these countries are gaming out ways to evade and avoid sanctions. And it's a sign that there is this block of countries around the world that are anti-American and that are increasingly working together to blunt the power of US sanctions. Let's talk about Iran for a second. I mean, the Trump administration implemented a sanction in Trump's first term on Iranian oil. And essentially, the Trump administration said, we want to bring Iranian oil exports to zero. So we want to try to stop every barrel of oil that leaves Iran from getting a customer.

9:38And it was very successful at doing that. But what then happened was that China essentially stepped into the void. The rise of China as an economic superpower that's often aligned with U.S. enemies means that these regimes now have another financial market to work with. And Russia, Iran, and North Korea have all taken advantage of it. Iran used to sell to lots of different countries around the world, and it ultimately was only left with one buyer. And China stepped in to buy that oil, and together with Iran created quite a sophisticated system of disguising where the oil came from. U.S. Treasury officials have said that Iran uses shell companies and middlemen in China, the UAE and Turkey to continue trading oil and goods.

10:27Iran has also found ways to rely less on the U.S. dollar, leaning on Beijing's use of the yuan in the oil markets and on cryptocurrency. China's currency, the yuan, has been very important for Iran and for Russia in helping them evade sanctions. Likewise, cryptocurrencies pretty much play the same role. When the U.S. Treasury sanctions an individual or a company, it's cutting it off from the U.S. dollar and the U.S. economy. But if you don't need access to the U.S. dollar, i.e. you can use cryptocurrencies to move money around, then the power of those sanctions weakens, essentially. So it's interesting.

11:08I mean, the rise of cryptocurrency and then China's ability to let these countries use its currency to operate outside the U.S. dollar system, essentially. I mean, what does that tell you? Is it kind of a diplomatic failure on the part of the U.S.? Is it a sign of weakening American power? From the perspective of why hasn't Washington done more to penalize Beijing and China's role in helping Russia and Iran evade sanctions, I think that that's also demonstrative of the increasing economic and geopolitical power of China. Washington has to think about whether that's the most important battle it wants to fight with Beijing at that particular moment.

11:56And there's often a number of different factors that are determining the health of the relationship between Washington and Beijing. And so at times there hasn't really been that political will to really pressure Chinese banks to start working with Iranian entities, for example. And some officials have argued that the way these sanctions are enforced doesn't help either. We are reviewing outdated and obsolete designations. Scott Besson has been quite clear that the Treasury thinks that sanctions and the way they're imposed and enforced requires a rethink. Sanctions left in place for years with no visible and tangible changes in behavior can have generational impacts that are nearly impossible to predict.

12:43He's been pretty clear that sanctions would need to be swift and they need to be very targeted and they need to have a limited time scope essentially to try to force behavioral change because after that point you start to see people gaming out ways to get around sanctions. And so where does that leave sanctions? The jury is really out on sanctions. The US ability to implement sanctions and to force other governments to change is diminishing. I think that's clear from the talks between Washington and Iran now. That being said, I think the US is still the most powerful country economically and militarily in the world.

13:26And people still want access to the US dollar. The U.S. dollar is still the world's dominant currency. U.S. products are still globally sought after. U.S. arms are globally sought after. So the idea that you can live in a world that's like totally beyond the reach of the U.S. and beyond the pressure of Washington is also illusory, I think. So at the risk of mixing my metaphors, it sounds like bubbles are being created by some of the U.S.'s enemy countries, but the U.S. still holds a lot of cards. Yeah, exactly. You've got these different bubble worlds that are being created, but the U.S. still has the ability to pressure these governments to change for sure.

14:07In a statement, a White House representative said that sanctions are one of a number of tools in President Trump's toolbox to advance his America First agenda. And that the president has, quote, successfully used our nation's economic and military might to execute his foreign policy goals, such as in Iran.

14:27That's the idea behind the Russia sanctions bill that the late Senator Graham was trying to move through Congress before his death. More than 60 senators, both Democrats and Republicans, have signed on to be co-sponsors. Here's Senator Richard Blumenthal, a Democrat from Connecticut who co-authored the bill with Graham, advocating for its passage. This sweeping sanctions bill has been long in the works. It took painstaking, sometimes painful negotiations and discussions. But it meets a pivotal moment. After the break, I asked Senator Blumenthal why he thinks these sanctions could move the needle in Ukraine.

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16:26Hi, Senator. Hi, how are you? I'm good. Thank you so much for being here. Last week, I spoke to Connecticut Senator Richard Blumenthal about the new sanctions bill that he's been trying to push through the Senate for over a year. The bill does a few things. It would impose additional sanctions on Russian defense, energy, and finances, and target the country's shadow fleet, which is the secretive network of vessels that Russia uses to get around sanctions. The bill would also do something new and more controversial. It would give Trump the authority to impose new tariffs of up to 100 percent on the top five buyers of Russian oil and gas, with China and India at the top of the list.

17:06Analysts said it would be the first time Congress authorized tariffs to be used as an explicit geopolitical weapon. Russia is already one of the most sanctioned countries in the world. Why do you think more sanctions would change anything in Russia's behavior when they haven't worked so far? Russia is sanctioned, but there are plenty of entities and individuals who have escaped sanctions so far. And this measure would impose scorching, absolutely sledgehammer sanctions on more of the oligarchs, on the banks, on the energy companies, and on Vladimir Putin himself, separating them very strictly from the world's financial system.

17:56And as to whether sanctions have worked so far, that's the reason why more sanctions should be imposed. Actually, the sanctions so far have deprived them, I think it's about a$450 billion price tag, which hasn't stopped the Russian economy. But the objective here is to stop the major purchases of Russian oil and gas. So I think they'll have an effect. Will they single-handedly bring Vladimir Putin to the table? No, they have to be combined with other kinds of economic and military measures.

18:36I also want to get into the tariffs part of this. So one of the things that makes this bill different is that it authorizes the use of tariffs as an explicit geopolitical weapon instead of what it's usually used for, which is as a tool to combat imbalances in trade. What made you decide to use tariffs in this way? Tariffs have always been used as a political weapon. You just look at the history of tariffs. They are as much or more used as a political weapon. But usually in trade, not necessarily in this way. Any country that dislikes these tariffs has an easy way to avoid them. You know what that is.

19:13Stop buying Russian oil and gas. Buy it elsewhere. So it is an economic measure, but obviously it has an underlying political purpose as well. It's an economic tool, but it has a very clear political effect, which is to defend freedom and make sure Ukraine has the support that we can provide economically. Senator Blumenthal also highlighted the need for sanctions to be better enforced. Enforced is the key word. Listen, for most of my career, I was a prosecutor. I was the United States Attorney in Connecticut for four and a half years. I was Attorney General of the state of Connecticut for 20 years.

20:01The law is dead letter if it's not enforced. All too often, sanctions simply haven't been enforced. And I've been critical of the Department of Treasury in the Obama administration, in the Trump administration, in the Biden administration for being too lax and laggard. These sanctions have the potential to change the course of this war. literally, to throttle Putin's economy, which already is on its heels. But enforcement is absolutely key. And you can bet I'll be all over this administration, like a wet blanket, watching what they're doing, watching like a hawk, to change the metaphor. And enforcement is going to be absolutely necessary.

20:47But some Democrats fear that Trump won't use the broad new powers granted to him in the specific way the Senate wants, that he might use it to impose sanctions on other countries outside the scope of the bill. I pose that concern to the senator. Does this bill authorize the president to only target the top five purchasers of Russian oil and gas? Or could he theoretically use this law to target any nation he wants in the future? That's the key question here. And the answer is only the top five purchasers, only the top five purchasers of oil, the top five purchasers of gas, with an exemption for countries that are buying less than 15 % of Russia's total export of gas if they are making significant efforts to stop those purchases, which means European countries would not be covered.

21:45And in addition, very importantly, top five facilitators of evasion. Going to your point about enforcement, we're not ignoring the pass-throughs, the countries that enable evasion. They're going to be hit hard, but it's only the top five. He can't use the law as a kind of broad tool to impose sanctions anywhere he wants. Why do it at all, though? I mean, we've seen that President Trump will impose tariffs without Congress. Wouldn't this just further legitimize his ability to do this, as some critics from your own party have pointed out? Talk to Vladimir Putin, ask him why he's so fearful of it.

22:29Talk to the governments of China and India. Why did they so abhor it? Talk to Vladimir Zelensky, ask him why he thinks it'll be so important. It creates leverage. Believe me, China and India are going to change their behavior. Now, it may not happen overnight, but trust me, the likelihood of their changing is much higher when they're facing a tariff of 20, 50, up to 100 percent. And the president, I believe, will use that authority. It's interesting, though, because it's my understanding, based on Wall Street Journal reporting, that the bill doesn't actually mandate that the president impose these tariffs.

23:07I mean, is there a chance that he doesn't do it? There is a chance that he doesn't. there's a chance that this president will do almost anything. As you know, he imposed tariffs that were shut down by the Supreme Court. This president is nothing if not mercurial and strong-willed. But the main proponent of this bill was my colleague Lindsey Graham. And one of the last conversations with Lindsey Graham that I had was right after the president gave the green light his support for this bill. And Lindsey was exultant. He called me and he said, this is a big effing deal. We all did good. He knew it was historic.

23:51The president knew of his years-long dedication of his cause. If the president's going to keep his promise and commitment on anything, I think it will be on something where he honors the memory of Lindsey Graham, and this bill is a tribute to Lindsey Graham. Senator Blumenthal emphasized that sanctions are just one way of pressuring Russia to end the war in Ukraine. This bill alone is not going to end the war. It has to be combined with other economic measures, as well as political and military. Very important military support is necessary for Ukraine, mainly air defense. And again, we need to make sure those tools are used, that there is enforcement.

24:35Having a hammer doesn't mean you're going to swing hard enough to hit the nail. The hammer has to be used properly. And we're going to try to make sure that hammer hits the nail.

24:48In our last few minutes here, Senator, I wanted to ask you a question that goes beyond Russia and Ukraine. I'm curious about your faith in sanctions more generally. would you say sanctions are still as powerful a tool today as they were, you know, 20, 30 years ago? Is the answer, you know, yes, if they're enforced correctly? I can't say 20 or 30 years ago. I don't want to answer a question that poses a hypothetical. But there's no getting around the point that sanctions need to be enforced. tariffs need to be imposed in a way that targets the countries that are buying Russian oil and gas. China, India, if they were to stop buying Russian oil and gas, the flow of revenue fueling Putin's war machine would be drastically reduced.

25:43The point is to end the war. The whole purpose of sanctions and tariffs is to bring Vladimir Putin to the table so we can preserve Ukraine's sovereignty, guarantee its security, make sure its territory is restored. Well, Senator, thank you so much for your time. Thank you very much.

26:18That's all for today, Wednesday, July 22nd. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode from Siobhan Hughes, Patricia Kausman, Yoko Kubota, and Alexander Ward. Thanks for listening. See you tomorrow.