[Editorial] Escaping the global sanctions net

Sanctions

Context

Russia – Ukraine War

What the editorial is about?

  • A shift is taking place in the business of global dominance and hegemony, from the model of expressing force through troop presence to financial sanctions.
  • It is led by the US and has become recently visible in the US and EU sanctions on Russia.

Most probable and repeated topics of upsc prelims

What are sanctions?

  • In their simplest terms, sanctions are measures imposed on a state, group or individual as punishment for certain actions.

The most commonly used sanctions

Economic sanctions

  • Commercial and financial penalties such as levying import duties on goods, restricting exports, blocking ports, investment bans and targeting companies from a state

Diplomatic sanctions

  • Political measures that aim to demonstrate displeasure with or disapproval of certain actions, stopping short of taking economic or military steps, such as reducing or removing diplomatic ties by – for example – closing a state’s embassy or cancelling high-level meetings

Military sanctions

  • These are called on only in extraordinary circumstances – range from arms embargoes to full-scale military attacks

A major shift

  • From rule-bound globalism, there is a move to an understanding of the management of individual economies, bound together by multiple networks of investment and trade.
  • This is a global economy of individual rivalries between countries and corporations, continually shifting alliances, and contingencies overtaking assumed structural certainties.

The way sanctions work

Exerting control from afar

  • In Afghanistan for example, financial manipulations from afar in the form of sanctions may result in subjecting trading activities and investment ventures to the approval of the US Treasury through a system of licensing.
  • If put into effect, it would give the US government the ability to exercise control over a government or its activities or both, and also over those countries or corporations trading with or investing in Afghanistan, by confronting them with the legal and financial risk of sanctions.
  • This may give the US a say in who trades with whom, but already China has found ways of working with or around US sanctions in several countries, including Iran.
  • Another way of exerting control from afar is through the confiscation of foreign exchange reserves in American banks.
  • For example, following the withdrawal of the American troops on August 15, the US froze Afghanistan’s foreign exchange reserves of $7 billion deposited in the New York Federal Bank.

Who are the beneficiaries of the economic sanctions?

  • The US policy of using economic tools for realizing foreign policy and overall national security objectives prioritizes the private sector.
  • Sanctions are designed by the government and implemented by both profit-making and non-profit private enterprises, domestic and international NGOs (including the United Nations).
  • As a result, private sector actors become important in “leveraging and calibrating sanctions” in the service of broader foreign policy and security ends.

Challenges associated with the recent sanctions

An economic lever to China

  • With the sanctions in Afghanistan, the Taliban views China as its economic lifeline to rebuild the country.
  • Sanctions offer economic lever to China in its dealings with the Taliban, to the Chinese state-owned enterprises and private corporations with an opportunity to invest in Afghanistan’s infrastructure, linking it to the Belt and Road project, and in its rich mineral resources of copper, cobalt, and lithium.

Eluding the sanctions

  • China and Russia, in concert, may provide a way out of the sanctions regime.

Implications for India

  • China could also use this as an opportunity to unite investments in Afghanistan and Pakistan, isolating India.

China Factor in Middle Eurasia

  • Russian military and political escalation to re-institute control over former Soviet regions, including Ukraine, Belarus, and Kazakhstan, and the rapprochement between China and Russia against the West may open up new possibilities for China in Middle Eurasia.

Effectiveness of banning Russia from SWIFT

  • Banning Russia from SWIFT is not effective.
  • Banning Russia from the SWIFT system of international payments is a problem for the global financial system.
  • The Russian economy is more isolated, protected and less reliant on international funding than was the Afghan economy.
  • The impact of any disruption in Russian exports of oil, gas, palladium, wheat and fertilizer at a time when those prices are barely recovering from inflationary pressures caused by Covid-19 disruptions, is likely to offset any leverage the Western sanctions may hope to gain.

Conclusion

  • Though sanctions are a way of exercising control over countries from afar. But Russia, China may find ways to elude it.
  • In the new game, the Western alliance led by the US seems lost in a maze of sanctions, largely ineffective in a global economy, the control of which is eluding its grip.
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