- 2 months ago
Speaking with FRANCE 24's Monte Francis, Nicholas Mulder, Assistant Professor at Cornell University and author of "The Economic Weapon: The Rise of Sanctions as a Tool of Modern War", explains that "the Trump administration is particularly sensitive to pressure from the markets" and that "Iran has begun to use the closure of the Strait of Hormuz as a form of economic pressure".
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00:03Tonight, we're taking a look at the use of sanctions as a tool in war.
00:07The U.S. has long used sanctions against its adversaries,
00:10and Iran has retaliated to the U.S. in Israeli airstrikes by shutting down the Strait of Hormuz.
00:16Given that 20 percent of the world's oil moves through that critical waterway,
00:20the partial blockade of the Strait can be seen as a way of imposing economic sanctions.
00:24We'll have more on that in just a minute with our guest.
00:27But first, let's get the latest from Delano D'Souza.
00:32An abrupt reversal from Donald Trump as his own deadline for Tehran to reopen the Strait of Hormuz was fast
00:38approaching.
00:39The U.S. president now says he's delaying targeting Iranian energy infrastructure for a five-day period,
00:45following productive conversations to bring the war to an end.
00:49They called. I didn't call. They called. They want to make a deal.
00:53And we are very willing to make a deal. It's got to be a good deal.
00:56This will be peace for Israel. Long-term peace. Guaranteed peace.
01:01Trump didn't specify who Washington was in touch with, and Tehran denies talks are taking place at all.
01:07What is certain, however, is Trump changed his tune hours after a statement from the IRGC was carried on state
01:13media warning of a tit-for-tat.
01:16Tehran threatened to go after power plants in regional countries if its electricity infrastructure was hit.
01:22Since the U.S. and Israel began the war, Iran has been lashing out at Israel, striking targets across the
01:28Gulf, and closed off the Strait of Hormuz.
01:31Cutting the vital waterway has taken the global economy hostage, and efforts from Washington to secure it have backfired.
01:38According to a report in Axios, the U.S. president has been mulling taking over Iran's Karg Island to pressure
01:44authorities to loosen their grip on Hormuz.
01:47The rocky outpost off the coast of Iran is viewed as the crown jewel of its energy infrastructure, and over
01:54the weekend, officials in Washington refused to rule it out.
01:57Karg Island, I want to ask you about your statement. You said it could become a U.S. asset. What
02:02exactly does that mean? Could U.S. troops go into Karg Island to secure it?
02:07Again, as I said, all options are on the table.
02:10Iran's Defense Council says Tehran would respond to any attack on its coasts or islands by laying sea mines in
02:17shipping routes across the Gulf.
02:18While the Islamic Republic has so far refused to capitulate, the latest move from Donald Trump suggests the U.S.
02:25president could be looking for an off-ramp.
02:30And for more on this, I'm joined by Nicholas Mulder, an assistant professor at Cornell University and the author of
02:35The Economic Weapon, The Rise of Sanctions as a Tool of Modern War.
02:40Thanks for being with us here on France 24. You argue that Iran's actions in shutting down the Strait of
02:46Hormuz are much like Trump's tariffs.
02:48In other words, the Iranians are speaking a language he understands, using economic punishment as a tool.
02:55Can you just explain that some more?
02:58Yes, absolutely. And thank you for the invitation.
03:00So I think that the way to understand the effective blockade of the Hormuz Strait that Iran has imposed since
03:08the beginning of this war is as a way of retaliating against an American and Israeli attack that targets those
03:17adversaries in an asymmetric way.
03:19It also, of course, imposes costs on the entire world economy.
03:23And one of the things that we've seen in the last year of the second Trump administration is that the
03:28Trump administration is particularly sensitive to pressure from the markets, be that the bond markets, but also increasingly stock markets
03:36and oil markets.
03:38And I think that the actions that they have displayed in the last few days have really shown that they're
03:43trying to exert through a lot of statements, downward pressure on the oil price, trying to reassure people that there
03:50will be an imminent resolution.
03:52Whereas, in fact, what is happening materially is a huge supply interruption in the energy markets.
03:57And that has very big downstream effects that we're going to be experiencing to an ever greater degree in the
04:02next few weeks, as they also have big ramifications in industrial materials and in food.
04:08So that's really the way that Iran has begun to use the closure of the Strait of Hormuz as a
04:13form of economic pressure against its opponents.
04:16In general, how effective are sanctions as a tool?
04:20You know, especially during a time of war, you seem to indicate here that this has been effective for Iran
04:24shutting down the Strait of Hormuz.
04:28Well, it's, of course, a weapon of last resort.
04:30Iran has long threatened to do this if there was going to be a serious war.
04:33The possibility that it would happen had been anticipated in a lot of studies of the war, but it seems
04:39like it didn't factor into the decision-making of the people who began this war three weeks ago.
04:44Now that it has happened, of course, the question is, will that pressure be enough?
04:48Can the American administration exert some sort of counterpressure to reassure the markets?
04:53And they've been doing so with some effectiveness the last few days.
04:57But ultimately, like I said, the physical shortages that are already taking place as a result of this war are
05:03going to translate into serious shocks in a variety of markets.
05:08The issue, however, is also that Iran is hitting a number of other countries with these forms of pressure.
05:15And so they will find themselves in a very difficult situation, developing economies, all sorts of other states that will
05:21suffer higher energy prices.
05:23The question is whether they can translate some of their pressure that they're experiencing into an increasing influence over the
05:31Trump administration.
05:32So far, it doesn't seem to be the case, but there might be ways that allies can come together and
05:37exert more pressure than they have been doing so far, at least.
05:41Now, this is a joint military operation between the U.S. and Israel.
05:44And there's a sense that the Israelis are much more willing to endure economic pain as this war goes on,
05:50more than the Americans.
05:51Is it your sense that there are limits to how much Donald Trump will allow in terms of economic pain?
05:59Certainly. And he's, of course, aware of the fact that his base is something to be managed.
06:05The administration has already imposed quite a serious cost on the American consumer by launching this huge trade war since
06:12the spring of last year.
06:13Now, on top of this, to have a historic energy shock is an extremely politically risky proposition.
06:18And I think that they're well aware of that.
06:20The issue is that they're running out of options with which to easily resolve it.
06:24So they managed to cushion some of the blow of tariffs with a big tax cut.
06:30Now, however, they have also tried to offset the energy shock effect with a very big release from the Petroleum
06:36Reserve.
06:37And they've also begun to lift sanctions on Russia and on Iran, not entirely, but for oil that is already
06:43out on the global ocean.
06:45And that really shows that there are limits to the degree that the U.S. can tolerate economic blowback from
06:51its own sanctions and that, indeed, it will have to or at least feels like it has to undo and
06:57dismantle some of its sanctions against other countries.
07:00So one of the things that we're going to be seeing, I think, going forward is as the U.S.
07:04tries to put more pressure on these states, it faces increasingly difficult tradeoffs.
07:08And it cannot do all these things at the same time.
07:11And that's something that this war has really shown to a very significant degree.
07:15Yeah, you mentioned this sort of strange twist of irony that the U.S. has actually eased sanctions on Iranian
07:20oil, which has already been shipped and is at sea.
07:23That moves appear, appears to be an attempt to ease the pressure on the oil market.
07:28But how do you read that in strategic terms?
07:32Well, I think initially it became clear that once there was a very large release from the strategic petroleum reserve,
07:39it was not immediately the case that traders felt reassured by that.
07:43In fact, because that release was so large, it seemed to be an indication that this was actually a very
07:49serious crisis.
07:50So there was further upward pressure on the oil price.
07:52Now, the American government is effectively treating the shadow fleets, which Venezuela, Iran and Russia have all been using in
08:00the last few years to evade and get around American oil sanctions.
08:05They're using that shadow fleet as a kind of extension of their own strategic petroleum reserve.
08:09And one of the things that you are also seeing is that China, of course, is important in this, both
08:16as a consumer of oil.
08:17So a lot of that Iranian and Russian oil will now find an uptake in China, but also in India
08:22and other Asian markets.
08:23But China has also shown that it is capable of using economic pressure itself.
08:29And that brings us back to the tariff events of last year, because China was one of the major countries
08:34that showed not only that it wouldn't yield to American tariff pressure, but that it had its own instrument with
08:40which to retaliate in the form of export controls on rare earths.
08:43So both Iran and China in various ways have shown that the United States no longer really has a monopoly
08:48on the use of this economic coercion and that they have very physical ways, whether that be rare earth materials
08:55that are incredibly important in industry or a global energy price shock as tools that they can use to exert
09:01countervailing pressure.
09:02You mentioned Trump's tariffs.
09:04You know, there were countries who capitulated and those that didn't to those tariffs.
09:08As you take a step back and take a look at that, what's the lesson for countries that were facing
09:14threats from Donald Trump, that it's better to resist or to give in?
09:20Well, I think that we can see from the record of the last year which countries have done best.
09:25The countries that chose a trade deal very early have not obtained any relief.
09:29In fact, the Trump administration has come back for more.
09:32It's demanded a say in weakening their domestic regulation, whether that's on AI or data protection.
09:37It has continued to exert pressure, particularly on the EU, which thought that it could avoid tariffs by having a
09:44quick deal, right?
09:45Low tariffs in exchange for pleas to invest more in the United States.
09:50And what we've seen is, in fact, that the United States has continued to threaten European countries, including Denmark, with
09:56the annexation of territory.
09:58That's only two months ago that that took place.
10:01So we see that countries that have quickly yielded, in fact, invite further pressure, whereas those that have not yielded,
10:09notably India, but also Brazil, China, and a number of other countries, have, in fact, done relatively well, much better
10:16than many people had assumed that they would.
10:19So one of the lessons is that there is safety in numbers.
10:22I might add Canada and Mark Carney's very clear spelling out, right, of a middle power strategy to avoid this
10:30pressure.
10:31As another example, that seems to be a much more promising way forward.
10:35And I think finally, leaders in other countries are beginning to realize that there is strength in numbers.
10:40But there has to be some sort of common approach to dealing with this pressure.
10:43If sanctions don't work effectively as a tool, what does?
10:47Is it that we just have to go back to good old-fashioned diplomacy?
10:52Well, there needs to be a whole range of options.
10:55And the difficulty and problem is that sanctions have became the foreign policy tool, really a first resort for the
11:02United States for a long time.
11:04Now it seems like this administration also has embraced open, direct war again and military action as an alternative.
11:10But the European Union as well has, since the Russian invasion of Ukraine, of course, embraced economic pressure as a
11:17way of compensating for the fact that it doesn't have a very strong conventional military army, at least in relative
11:23terms.
11:24So as a result of that, a lot of faith was placed in sanctions.
11:28And sanctions can, under certain circumstances, achieve things.
11:32They're better than a lot of alternatives.
11:33But they have serious drawbacks.
11:35One of them is that they have these second-order effects.
11:37They oftentimes have unintended consequences.
11:41Oftentimes, they don't work very quickly.
11:43And in the long run, they can actually harden the attitudes of the target states or even bring together different
11:49countries that are all exposed to them.
11:50And that's one of the things that U.S. sanctions have done over the last few years.
11:54They've driven closer together, China and Russia, two countries that, in fact, have many points of disagreement.
11:59And rather than trying to deal with these countries by themselves, American sanctions have really forced them closer together and
12:06also brought Iran, Venezuela and other countries into that coalition, North Korea as well.
12:12So this has, in fact, created more problems.
12:15And diplomacy, ultimately, is a very important key to this.
12:19Sanctions can play a role together with diplomacy.
12:21And the best proof of that was in 2015 when the Obama administration negotiated a very successful nuclear deal using
12:29sanctions pressure and then credibly delivered sanctions relief.
12:32The problem is that that credibility of offering sanctions relief now has been weakened dramatically.
12:38And that's one of the reasons why we find ourselves in this really tragic and calamitous situation of a major
12:44shooting war and a global energy crisis.
12:46Okay, we'll have to leave it there.
12:47Nicholas Mulder, assistant professor at Cornell University and author of The Economic Weapon, The Rise of Sanctions as a Tool
12:53of Modern War.
12:54Thanks for being with us here on France 24.
12:56We appreciate your insight.
12:58Thank you very much.
12:59Thank you very much.
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