U.S. Power and Influence in the Middle East: Part Three

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Jon Alterman: The United States has been sanctioning the Syrian government since the 1970s. Most of the current sanctions, though, came in two waves. The first was in 2004, to try to force an end to the longstanding Syrian troop presence in Lebanon. The second was a response to the Syrian government’s sharply escalating human rights abuses following the 2011 Arab Spring protests. Those protests evolved into a still-raging internal conflict, and the sanctions have curtailed most remaining U.S. trade with Syria. They froze the U.S. assets of government officials, government-owned enterprises, and prominent Syrian businessmen tied to the regime. In 2019, the United States changed its sanctions approach with the Caesar Act. Eliot Engel, the former chair of the House Foreign Affairs Committee, sums it up:

Eliot Engel: “The Caesar Act imposes the most sweeping sanctions on the Syrian regime and its backers since the start of the civil war. Unless they stop the violence against their own people and take irreversible steps toward peace, the United States must raise the price of their choices.”

Howard Shatz: What does the Caesar Act do? It institutes sanctions on those who support the Syrian government or senior policy figures. Sanctions also target those who support the oil and gas industry there, provide military aircraft or parts, or offer construction or engineering services. It also does something else, though. It mandates sanctions on anyone effectively doing business with any other person or entity designated under Syria-related authorities. That means that if you've been designated, but I haven't, and I do business with you, I need to be designated too.

Jon Alterman: That’s Howard Shatz. He’s a senior economist at RAND who served with the Bush administration’s Council of Economic Advisors in 2007-2008. He says that the Caesar Act had a specific goal.

Howard Shatz: Why do we have the Caesar Act? The United States wants to drive the Assad government to make the kinds of reforms mandated by UN Security Council Resolution 2254. The threat of secondary sanctions has effectively stopped outside investors from cooperating on reconstruction projects. That's been extremely successful. We know that, in part, because potential investors have complained about it.

Jon Alterman: But, even with all of that pressure, the Assad regime hasn’t done what the United States was trying to get it to do.

Howard Shatz: Has it forced Assad to agree to move even a single step closer to doing the things that UN Security Council Resolution 2254 says he should do? I think the answer there is no.

Jon Alterman: Ali Vaez, the International Crisis Group’s Iran project director, says that sanctions on Iran have done no better.

Ali Vaez: Despite the sanctions policy, the Iran of 2022 is closer to the verge of nuclear weapons that it has ever been. It has one of the most sophisticated ballistic missile arsenals anywhere in the region. It also has a network of influence—through partners and proxies—throughout the region that threaten U.S. interests and those of its allies. If we measure the success of U.S. economic coercion against Iran by those developments in the past four decades, it has been an abject failure.

Jon Alterman: Welcome to the U.S. in the Middle East podcast miniseries. In this series we talk to leading experts and former policymakers about the role of U.S. power and influence in the Middle East. I’m your host, Jon Alterman, senior vice president, Zbigniew Brzezinski Chair in Global Security and Geostrategy, and director of the Middle East Program at the Center for Strategic and International Studies in Washington, DC.

In this episode, we look at the United States’ economic toolkit in the Middle East and how successful development aid and sanctions have been to address U.S. interests in the region. Sanctions have become the U.S. government’s go-to economic tool in the Middle East—and beyond—since 9/11. Last year, the Biden administration commissioned a comprehensive report on the use of sanctions around the world. Ali Vaez summarizes the findings.

Ali Vaez: You can see that use of U.S. sanctions in the past 20 years has increased by 930 percent. We have a powerful machinery in designing, implementing, and enforcing sanctions, but this is a wheel that only turns in one direction.

Jon Alterman: And the United States has gotten very good at turning it.

Howard Shatz: Those sanctions could be trade sanctions—limits to some extent on trade of goods and services between countries. They could be investment sanctions—limits on investments into U.S. firms or U.S. investments into foreign firms—or they could be financial, in which we limit foreigners from accessing the U.S. financial system.

Jon Alterman: Those sanctions can be costly. Between 2011 and 2015, U.S. sanctions caused Iran’s gross domestic product (GDP) to contract more than 20 percent. Over the same period, U.S. sanctions on Iran’s oil sales shrank exports by over 1 million barrels a day—more than 50 percent. But does that pressure lead to what the United States wants? Ali Vaez says that it can, but only under specific circumstances.

Ali Vaez: What people often overlook is that the Obama administration had two characteristics that actually helped it to cash the check that it had through sanctions. First: it was in pursuit of a narrow, realistic objective in coordination with the world powers—Europe, Russia, and China. Second: it, as the stronger party, made the first concession to the Iranians. In 2012, in secret negotiations in Oman, it was the United States that took a step back from the previous red line of zero enrichment in Iran. It acknowledged that there has to be a limited, but rigorously monitored, nuclear program in Iran. That is what made a deal possible.

Jon Alterman: But Howard Shatz says that using sanctions to get countries to do what the United States wants is more complex than it seems.

Howard Shatz: If you look at the actual consequences, sanctions are very good at causing declines in GDP and declines in trade. So, they have economic consequences. Do they have the compliance consequence that you want? That's much harder. In some cases, yes. In some cases, no. They can cause a lot of pain. It is highly unlikely that they will cause countries to give up core interests.

Jon Alterman: And sometimes, sanctions policy can have the opposite effect from what policymakers intended.

Ali Vaez: Sanctions create a new class of Iranian officials who really benefit from skirting sanctions and creating ways to circumvent them through smuggling and the black market. The previous Iranian president, Hassan Rouhani, used to call those people the “merchants of sanctions.” Those are people who actually don't want sanctions relief. Interestingly, these are often people that the United States seeks to weaken, but counterintuitively—as a result of sanctions policy—become empowered in Iranian politics.

Jon Alterman: But Shatz thinks the problem is more complicated still. Many governments, and especially sanctioned ones, don’t care much about the well-being of the population.

Howard Shatz: The more national government is willing to let the population starve or suffer, the less likely those sanctions will be effective.

Jon Alterman: Vaez puts more of the blame on the U.S. side. He argues that repeatedly imposing sanctions is counterproductive.

Ali Vaez: The effectiveness of sanctions as a tool of state craft depends on our ability to relieve sanctions in response to the target country’s real policy shifts. Sanctions are only as effective as our ability to provide the target country with real relief. What really matters is what happens when sanctions are lifted—not necessarily what happens when sanctions are imposed.

Jon Alterman: Despite the initial success of sanctions against Iran in bringing the government to the negotiating table, Vaez says the United States wasn’t able to deliver on the promised relief.

Ali Vaez: Despite the Obama administration’s proactive efforts, it took months and months for the Treasury Department to issue licenses—even for sale of our own Boeing aircrafts to the Iranians. It took about 10 months, for instance, to issue licenses for these specific airplanes. Iran's banking ties with the outside world really never went back to normal because of the persisting chilling effect of sanctions that we had put in place.

And there are other countries that are looking at this Iranian experience—like North Korea and Venezuela. I think they will come to the conclusion that there is no point in coming to a diplomatic settlement with the United States that could lift sanctions because sanctions relief only happens on paper and deals with the United States are only as good as the administration who signed them.

Jon Alterman: So, if the U.S. experience with sanctions is such a mixed bag, why has the United States gone from having 912 global sanctions in place in 2000, to having 9,421 in 2021? Shatz says that part of their appeal is they can serve so many purposes, but they cost the U.S. government so little.

Howard Shatz: What we always think of as an outcome of those tools is compliance—bringing about a behavioral or a policy change—but there could be other purposes to those tools. We might be using them to deter a foreign target from taking an action. We might be using them purely for symbolism. We also could be using them in lieu of something else linked to symbolism. We could take military action of some sort, but we don't want to do that. It's not worth it, so we’ll put something on. We’ll do a sanction.

Jon Alterman: And in the world of sanctions, the United States is king. Because the United States controls the market of U.S. dollars, and dollars play such a large role in global trade, U.S. sanctions carry weight that other countries can’t match.

Howard Shatz: If you have dollars and you can get those dollars to someone else without going through a U.S. bank, there's nothing the United States can do. But as it turns out, in order to move dollars around the world, almost always, you need to go through the U.S. banking system. That’s where the U.S. gets its financial sanctions power from.

Jon Alterman: But the United States hasn’t only tried to coerce countries. It’s also tried to co-opt them. And frankly, that hasn’t been a huge success, either. In the Middle East, the United States has poured billions of dollars into economic assistance. Its stated goal has been to do what it seeks to do elsewhere in the world: build resilient economies that more closely resemble the United States, with robust private sectors, high levels of trade and investment, and a limited role for state-owned enterprises.

One of the largest beneficiaries of this approach has been Egypt. The United States put almost $30 billion dollars into the Egyptian economy since Egypt made peace with Israel in the late 1970s, but few U.S. policymakers point to Egypt as a major economic success story.

Amy Hawthorne is the Project on Middle East Democracy’s (POMED) deputy director for research. During the Arab Spring, she served as a senior advisor for Near Eastern Affairs in the State Department and as the Egypt Country Coordinator for the Special Coordinator for Middle East Transitions. She says that U.S. economic aid to Egypt hasn’t really changed the Egyptian economy much over the last four decades.

Amy Hawthorne: When we look at how Egypt has done with this money, when measured against those formal goals that the United States has set, we see that there hasn't been much positive impact. The poverty rate in Egypt today is, by most measures, worse than it was several decades ago. The private sector in Egypt continues to be very anemic and crowded out by politically connected firms or military-owned enterprises. Egypt still doesn't have a good trade balance.

All of this aid has not really made much of a positive impact at all against the development and economic goals that the United States has set for it. It has actually been a failure in terms of what we set out to achieve.

Jon Alterman: But, Hawthorne says that aid has achieved a different goal.

Amy Hawthorne: If we look at maybe what we might call the “informal” or “unstated” policy goals of this assistance, we could say that perhaps the aid has been slightly more effective. The unstated goal attached to this economic aid is promoting the stability of the Egyptian regime—whatever regime that happens to be. This aid program has continued during the regime of Sadat, Mubarak, Morsi, and now Sisi. Whatever the incumbent regime in Egypt, one of the goals of this assistance program is to support that regime, keep it from collapse, and help it stay in place.

The rationale at base for this aid is not about economic development. It's not about governance. It's not really about improving health and education outcomes. It is about signaling and reaffirming to the Egyptian government—and possibly signaling to other actors in the Middle East region—Egypt's strategic importance to the United States.

Jon Alterman: On that front, you could say that U.S. aid to Egypt has been a success. Egypt has remained at peace with Israel. It has not obstructed—and in some cases it has significantly helped—a number of U.S. initiatives in the Middle East.

But using economic inducements to solve strategic problems in the Middle East has also led to problems. One of them is that once you start using them, it’s hard to stop.

Amy Hawthorne: Egyptian officials have told me directly in conversations that they see this economic aid as an entitlement. They use that word. They see that they're entitled to it because of their peace with Israel. Many senior Egyptian officials and decisionmakers see this as a rent that the United States pays because of Egypt's strategic cooperation with the United States and because of Egypt's peace treaty with Israel, in particular.

Jon Alterman: Howard Shatz sees other problems, too.

Howard Shatz: Large flows of aid can lead to corruption. The best example of that is when we started giving lots of money to Afghanistan and Pakistan.

Jon Alterman: Aid can also leave governments weaker, not stronger.

Howard Shatz: If you go to a country receiving a large amount of aid, you'll see a lot of their best people are working for aid agencies rather than for host country governments.

Jon Alterman: Finally, a commitment to aid can mean that the United States ends up pouring money into projects that the host government has no intention of letting become successful.

Amy Hawthorne: If I had to boil it down to one reason why we have not really seen much large-scale impact on Egyptian behavior—when it comes to economic and other government policies that our aid program is ostensibly or purportedly trying to bring about—it would be that the Egyptian government has not been a development partner for the United States. This has been the case across Egyptian regimes.

Jon Alterman: And some in the U.S. government think that’s fine.

Amy Hawthorne: When you have this money that keeps flowing because of strategic imperatives and a bureaucracy on both sides—Egyptian and American—that's built to keep this money going, there’s an inability or an unwillingness on the part of the United States to really look honestly at this aid.

Jon Alterman: But economic aid is not the United States’ only economic carrot in the Middle East.

Howard Shatz: We negotiate bilateral investment treaties with countries. We negotiate free trade agreements with countries, or with groups of countries. We offer assistance of some sort in using U.S. suppliers or buying U.S. goods. For that, we have things like the U.S. export/import bank.

Jon Alterman: If you ask economists, trade has been an effective policy tool.

Howard Shatz: In terms of the positive aspects of economic state craft, the United States has been extremely effective with trade agreements. Some of those trade agreements have had political motivations. After 9/11, we developed a set of trade agreements with the Middle East, for example.

Jon Alterman: When the United States switches up how it gives aid, that has led to some real successes.

Howard Shatz: We have actually been quite innovative in delivering assistance with the development of the Millennium Challenge Corporation (MCC). Even though it's a small amount of money, it has had a large impact on how people think about development assistance. It delivers assistance to countries that meet good marks on issues like governance, and that counters the problem of giving money to governments that are just going to waste it. The second of the MCC’s innovations is that it develops assistance in coordination with the host country government—in the sense that it is a project that the host country government owns. There's much more country ownership than with traditional development assistance. It is not just a gift from a powerful country to a less powerful or poor country.

Jon Alterman: But even when there have been successes in changing behavior or improving economic outcomes in the Middle East, the United States has struggled to demonstrate that to Middle Eastern publics.

Amy Hawthorne: Generally, if you ask Egyptians their opinions of USAID, they might say either they have no awareness of what USAID is doing or has done—they just don't know about it—or they might have a negative opinion because the U.S. government is generally not that popular in Egypt. A lot of Egyptians don't know that the United States is responsible for helping to develop Egypt's sewage system and increase its freshwater availability, or that the United States has played a very positive role with immunizations and with literacy.

Jon Alterman: It can be hard to measure success in the first place.

Howard Shatz: What we do know is that trade agreements lead to more trade. We know that trade is positively correlated with economic growth. We have a trade agreement and more trade. We have slightly faster economic growth and a larger economy. The link that we don't have much control over is: how does that higher amount of GDP get distributed within the country? Who gets the gains from the extra growth of trade, and who were the losers? There are always losers in expanded trade. We often have not looked at the distributional consequences of any of our economic tools.

Jon Alterman: So, what would an effective economic toolkit in the U.S. look like? Howard Shatz says it should start with a reevaluation of the tools at the United States’ disposal.

Howard Shatz: The frontier that is very interesting is: how can those positive inducements be made more efficient? Should we rethink the goals of those positive inducements in the ways that we've started to rethink sanctions? The U.S. treasury went through a sanctions review, and U.S. sanctions policy is evolving and has changed its goals. What can we do with the positive inducements?

What more can the United States and its allies and partners do to induce positive economic development and greater integration of those countries into the international rules-based system—the foundation of which it is the World Trade Organization (WTO), the World Bank, and the International Monetary Fund (IMF)? How can they support the basic rules of trade, national treatment, and most favored nation-status? Those are the areas that are most interesting, at this point, and the most-worth looking at further—especially in relation to the Middle East, as the region tries to reform its own economies.

Jon Alterman: The United States’ experience with its economic toolkit in the Middle East hasn’t always led to the changes that the United States intended. Sanctions have had some impact, but most targets have been able to adjust to them—and even profit from them—undermining their long-term effectiveness. The number of times governments have rethought their core interests because of sanctions is low. In addition, sanctions tend to give repressive governments even more control over their economies, potentially strengthening them against internal challenges.

Positive inducements haven’t been markedly more successful. They’ve generally been less effective than hoped in creating a virtuous circle of reforms that bring governments closer to the United States. When there has been success, it’s often hard to measure—and hard to demonstrate to publics in the Middle East.

Next time on the podcast, we look at the United States diplomatic toolkit in the Middle East and the failures and success of U.S. diplomats in the region. This is the U.S. Power and Influence in the Middle East podcast miniseries.