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North Korea may have just given US much needed win in war waged by sanctions

Key Points
  • The United States is using energy sanctions around the world to bring its rivals to heel.
  • Some foreign policy analysts warn that the penalties are falling short of their aim.
  • Sanctions are most effective when there is broad international support and a clear goal.
  • On Tuesday, North Korea said it was open to talking to South Korea and the U.S. regarding denuclearization and normalizing ties.
Oil workers conduct a drill in a petroleum well in Lagunillas at the east coast of Lake Maracaibo near Maracaibo City in Venezuela.
Jorge Silva | Reuters

The United States is deploying energy sanctions from Caracas, Venezuela, to the Korean Peninsula in a bid to bring its rivals to heel. On Tuesday there was a potential breakthrough: A South Korea delegation that met leader Kim Jong Un reported that the North Korean leader is willing to hold talks with the U.S. on denuclearization and normalizing ties. They also said North and South Korea will hold their first summit meeting in more than a decade in late April.

If North Korea fulfills those promises that would be a big win and sign that the recent ineffectiveness of sanctions against some of the United States' biggest enemies — which have fallen short of their goals — may not apply to North Korea. Treasury Secretary Steve Mnuchin said on Tuesday that more sanctions against Russia will be unveiled in the coming weeks. 

American policymakers developed the world's most sophisticated sanctions regime during a more than decade-long campaign to prevent Iran, OPEC's third-largest oil producer, from developing a nuclear weapon. Since then, they have wielded the financial weapons to punish Russia for annexing Crimea, hasten the downfall of Venezuela's strongman leader and to halt North Korea's nuclear program.

These more recent sanctions regimes are missing some elements that made the Iran campaign successful, analysts say. The United States reached the landmark 2015 Iran nuclear agreement by marshaling international support for sanctions and focusing on the relatively narrow goal of getting Tehran to accept limits on its atomic program.

"The major purpose was to change behavior, and that at least brought about" the Iran nuclear deal, according to Richard Morningstar, former U.S. ambassador to the European Union and State Department Special Envoy for Eurasian Energy.

"It worked because there was unity among the key players," including the United States, Europe, Russia and China, said Morningstar, now chairman of the Global Energy Center at the Atlantic Council.

When it doesn't work, sanctions threaten to escalate conflicts, undermine the global economic system and damage the United States' bargaining power in cases where the sanctions fail.

Questionable endgame in Russia and Venezuela

In a report released last week, the Global Energy Center concluded that U.S. and European sanctions against Russia for its role in Ukraine's civil war have had a limited impact. Russia has been able to increase its oil output because the sanctions targeted long-term growth projects, like Arctic drilling.

That creates a question for how the United States and Europe should proceed, since Russia has not changed its behavior in Ukraine, Morningstar told CNBC.

"What would withdrawal of the sanctions mean? Does it show weakness that we're not serious, that we withdraw the sanctions without any serious movement?" he asked.

There's a similar problem at play in Venezuela, where the United States has imposed sanctions to prevent the ruling regime and state oil giant Petroleos de Venezuela SA, or PDVSA, from refinancing their massive debt load.

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The sanctions are geared toward dislodging President Nicolás Maduro from power by denying him relief from international debt markets. By locking Venezuela into a spiral of economic collapse and declining oil production, the administration hopes to make Maduro's rule untenable.

"Sanctions are rarely an effective tool for total regime change," said Shannon O'Neil, vice president and deputy director for Latin American studies at the Council on Foreign Relations.

"We have examples of places where you have depressions, huge hyperinflation, terrible economic situations — and regimes, particularly authoritarian regimes, persist."

That's because Maduro is locked in a zero sum game, O'Neil said. His regime either remains in power or faces the prospect of imprisonment under a new government. Meanwhile, the sanctions stand to by prolonging the nation's chronic shortages of food and medicine.

A 'poster child' for sanctions

To be sure, a vulnerable economy is one condition that often makes sanctions effective, said Nicholas Eberstadt, the Henry Wendt Chair in Political Economy at the American Enterprise Institute. For that reason, North Korea is the "poster child" for a sanctions target, he said.

These sanctions are largely focused on disrupting flows of coal and oil to and from North Korea, in an effort to force dictator Kim Jong Un to give up his nuclear program. Despite the latest news development on Tuesday, Eberstadt said he didn't think there were "a whole lot of reasons to think the regime is going to reverse itself on its nuke and missile threat, even if it's under devastating sanctions." 

That is because the nuclear program achieves several objections. It reinforces the Kim regime's legitimacy and authority at home, creates an insurance policy for his survival and gives Pyongyang a potent chess piece in its goal of reunifying with South Korea.

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The debate over the effectiveness of the sanctions may not change even with the sudden turn in North Korean strategy. "It's hard to say how much sanctions played a role. You can find evidence either way," said Lisa Collins, fellow and Korea chair at the Center for Strategic and International Studies. Collins said experts who believe sanctions are not effective are likely to still believe that today, but those with a more optimistic view of this turn in events will say that the sanctions are working.

Collins is somewhere in between both camps:  "I tend to believe the sanctions do work. They are not a silver bullet and they are not the only thing we should use to get them to de-nuke, but they can, with other things, have an effect," she said.

Secretary of State Rex Tillerson said earlier this year that sanctions were "really starting to hurt" North Korea.

Collins points to some anecdotal signs to support the view that sanctions have taken a toll on the North Korean economy. A recent abundance of seafood in North Korea — which would usually be reserved for the Chinese market and sale in foreign currency — as well as reports from traders on the border between North Korea and China that trade is down and they are having trouble making ends meet, both suggest that sanctions are having some effect and that the Chinese have been more willing to enforce U.N. Security Council sanctions recently.

Collins said that while the North Korean opening to a dialogue has decreased tensions in the region, it's difficult to know what is truly behind this change. Some experts argue this is a bid for sanctions relief from South Korea's unilateral sanctions and it could just be a way to buy time while still developing its weapons program. Or it could have always been in the works — there are experts who believe that North Korea has reached its objectives with its nuclear missile development and can now focus more on its other major national goal: economic development.

It's also possible that the North Koreans are looking for a combination of sanctions relief and driving a wedge in South Korea–U.S. relations. "Whether this lasts longer than a few months is still an open question," Collins said, noting that the United States and South Korea still have joint military exercises planned for April.

North Korea knows the military exercises are still planned, but its reaction as well as the specifics of sanctions relief will be important — or it could be "back to missile and weapons testing," Collins said.

Sanctions can still turn out bad

Meanwhile, if the sanctions succeed in crippling North Korea's economy, they could still backfire in several ways. The nation's small group of wealthy elite could rally around Kim rather than turn against him. Kim could also allow famine to break out, using the nation's poor as economic hostages to break the West's will. Finally, the strain could push North Korea to engage in increasingly dangerous brinkmanship in the region.

Despite all this, Eberstadt believes there is still room to improve compliance with sanctions.

A broader concern about sanctions is that they stand to undermine the integrity of the liberal international order, especially when the United States uses so-called secondary sanctions to punish countries that do business with sanctioned nations, Eberstadt said.

"The more one makes exceptions to the principles of free trade, the more one may be unintentionally raising questions about the whole architecture of the system," he said. "Does everything turn out to be an exception in the minds of the architects of international trade and the financial system?"

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