A cautionary tale of maximum pressure

In early 2019, U.S. efforts to facilitate the departure of disputed Venezuelan leader Nicolas Maduro started with a new executive order and a campaign to recognize the leader of the National Assembly, Juan Guaidó, as interim president of the country. As rhetoric mounted, the U.S. sought global recognition of the new presumed leader, as provided for by the country’s constitution, and to enforce sanctions on Maduro’s inner circle and military leadership.

Maduro is unquestionably a dictator, and the suffering of his people is at his own hand. While U.S. efforts to pressure him are justified, the emergence of Venezuela as a foreign policy priority over the past two years has overburdened the U.S. sanctions agenda. As several of our robust programs run out of runway and global markets force them to intersect, the U.S. is losing the legitimacy of one its most powerful tools. Unfortunately, our Venezuela policy has come to exemplify a collision course for maximum pressure sanctions campaigns when other difficult players enter the fray.

In Spring 2019, the laser focus of the administration on Maduro’s ouster caught the eye of Moscow, which saw Caracas, an ideological foothold in the Western hemisphere, beginning to wobble. Arguably the pattern was set by the power vacuum left by Western dithering in Syria: Our clear political interest but disinclination towards military action was an opening for the Kremlin to test the soundness of our resolve. Several weeks into U.S. efforts to build international support for Guaidó, Russia delivered a cadre of little green men from Syria to Caracas to support Maduro. For about two weeks’ time I convinced myself this could be a Franz Ferdinand moment, when the centrifugal forces converge and explode in an unlikely location. But we understood that there were limited flight paths from Syria to Venezuela and that Russia would need to request overflight and permission to refuel along the way. The Atlantic Ocean was on our side.

In the end, the transfer of little green men didn’t last all that long. The Russians had made their point. It didn’t take much to get a rise out of Washington and to watch us scramble to try and stop them. In a freewheeling conversation with a European counterpart I asked: “What do you think the Russians are doing in Venezuela?” “Being a pain in your ass,” was his simple reply. True, but also a little more than that. Moscow had business interests to protect because the instability in Venezuela was a threat to the operations of their parastatal oil company, Rosneft, which itself has been under years of U.S. and European sanctions pressure in response to Moscow’s incursions in Ukraine. U.S. oil companies had similar concerns about their bottom line.

One year later, oil prices have plummeted, and the U.S. has taken action against the company’s oil trading infrastructure, dealing a further blow at this revenue stream and its ability to preserve the Maduro regime. Like our French and Italian friends have observed for all too long with their parastatals in Libya, at some point the level of political unrest will cross a certain threshold that makes further investment unwise. The Russians have begun to cut their losses, for now.

Yet the same pattern of behavior materialized again this Spring with another American adversary eager to generate oil revenue, and again the U.S. tried to interdict vessels bound for our hemisphere. Iran began delivering gasoline and fuel additives to Venezuela, using airlines and ships we have sanctioned. The recipients on the Venezuelan side are also sanctioned. Iran and Venezuela sanctions meet face to face. There were hardly any relevant entities or individuals remaining untouched — we’d used them up. So, what comes next?

The additional complication here is that gasoline is not little green men who violate the sovereign territory of Ukraine or who serve as mercenaries perpetrating human rights violations in Syria. Our allies have shown their clear distaste for Maduro through their own policies and didn’t take well to the little green men either, but they consider the provision of gasoline a basic human necessity. After all, whether through sanctions or Maduro’s cronyism alone, basic fuel supplies are scarce in the world’s most oil-rich nation. And while our allies’ companies have severed most economic links with Iran either under the threat of U.S. penalty or just their own business judgment, sanctions against Iran’s oil sector remain unilateral U.S. measures, not their own.

After all our efforts, we are once again left with the same ask, only now it’s politically tenuous: Can countries deny overflight and use of territorial waters because of gasoline? Can we force seizure of a vessel solely on the basis of U.S. law? The entire foreign policy apparatus of the U.S. government moves into whack-a-mole mode.

The Venezuela example is instructive for several thematic reasons. First it shows the limitations of unilateral sanctions campaigns with binary goals. Whether regime change in Tehran should be the virtuous windfall that brings Iran back to the negotiating table or whether current leaders will buckle under financial pressure, U.S. goals have become binary, and we have exhausted our financial tools to get there. In Venezuela a similar goal is less murky: Maduro out. I have heard several commentators recently identify regime change as impossible through sanctions. I’m a little more sanguine and won’t exclude the possibility, but it probably takes more time than we have patience for.

The more real and immediate problem is that we have portrayed the stakes too clearly. A binary goal means we will fail, at least in the public’s eye, at the slightest provocation that succeeds against us — because we have placed our rhetoric ahead of our capability in an all-or-nothing game. If you get to 98 percent, only the remaining 2 percent matters to winning, and it’s easy for our adversaries to “succeed” 2 percent of the time. By delivering gasoline shipments to Caracas, both Iran and Maduro flouted our maximum pressure without tremendous expense or effort, never mind the very real and incredible pressure we have placed on both regimes. That’s the weakness of a self-declared maximum financial pressure campaign when we’ve exhausted our options. The most powerful country allows its entire policy to hang in the balance of ships traversing international waters with scant legal basis to stop them.

Second, and relatedly, it shows the problem of foreign policy silos that interact separately with a global financial system that we have worked hard to unify with our own dollar. Advocates for aggressive sanctions policy, either in the administration or in Congress, might deliver clearly articulated arguments for their proposed course, but often do so in splendid isolation. I have observed that by curse of organizational design, regional experts tend to gather among themselves: There are Iran conversations and Venezuela ones too, but the two groups only sit in the same room when circumstances dictate. As we continue to push an increasing number of economies out of the formal financial system, we should hardly be surprised when alliances of convenience (or of economic necessity) emerge on the other side. It’s an alternative nexus of supply and demand, and in this case a kind of ad-hoc oil trade, mushrooming under the weight of de-dollarization, and outside of a global commodity market still negotiated in that very currency.

Third, it shows the limits of financial pressure as a peaceful weapon. For this I always think of another example. As ISIS expanded its control of Iraq in 2015-16, the group assumed control of Mosul’s outpost of the Iraqi Central Bank and a considerable reserve of dollars held there. The Defense Department ensured that those bills were swiftly taken out of circulation, a quick and wise move. But thereafter my Treasury colleagues and I started using the words “kinetic action” way more frequently than any finance ministry perhaps reasonably should, swooning somewhat over our very real ability to take money away from terrorists. After all, it’s not so often that you get to bomb your own cash. Two years later, I recall a colleague boldly referring to our authorities for precision targeting, and a clarification from another colleague with defense equities in mind: “The U.S. has precision targeting capabilities, but I don’t assume those are the authorities you are referring to.” Ultimately it is hard for economists and lawyers to take planes out of the sky and boats out of the water.

In combatting illicit finance, virtue is in the details, and it takes the careful diligence and dedication of experts across the government and among partners to execute policies that are in the end less sweeping than they are minute, and less maximalist in rhetoric than they are carefully considered. The confluence of Venezuela, Russia and Iran is a cautionary tale about the limits of our own tools, as powerful as they can be, and believing the world can be examined within silos, and that if there is ever to be one silo — that it is our own.

Views are the author’s own.

Julia Friedlander is C. Boyden Grey Senior Fellow in the Global Business and Economics program at the Atlantic Council. She served as Director for European Union, Southern Europe and Economic Affairs at the National Security Council from 2017-19, and as Senior Policy Advisor in the Treasury Department’s office of Terrorism and Financial Intelligence.