War by Other Means

by Robert D Blackwill

  37. David Allen Baldwin, Economic Statecraft (Princeton: Princeton University Press, 1985), 191.

  38. See, e.g., Bijan Khajehpour, Reza Marashi, and Trita Parsi, “Why the Sanctions Don’t Work,” National Interest, April 3, 2013 (criticizing U.S. sanctions against Iran for failing to “achiev[e] their stated objective: shifting Iran’s nuclear stance” without considering whether there are more desirable alternatives).

  39. Quotes from “The Chill from Frozen Assets,” Wall Street Journal, December 4, 1979; and Robert Carswell, “Economic Sanctions,” 248, as cited in Baldwin, Economic Statecraft.

  40. Baldwin, Economic Statecraft, 191, 257.

  41. Ashley J. Tellis, Balancing without Containment: An American Strategy for Managing China (Washington, D.C.: Carnegie Endowment for International Peace, 2014), n. 117.

  42. Robert Zoellick, “The Currency of Power,” Foreign Policy, October 8, 2012. And see Braz Baracuhy, “The New Geo-economics of Global Trade: The WTO’s Perspective,” International Institute for Strategic Studies, September 13, 2014 (“The centrality of Asia in intra- and inter-regional trade flows is a key geo-economic development of recent years”); Jeremy Page, “China Sees Itself at Center of New Asian Order,” Wall Street Journal, November 9, 2014.

  43. Conversation with author.

  44. David Ignatius, “The U.S. Is Still Indispensable when It Comes to Free Trade,” Washington Post, April 3, 2014.

  45. Ibid.

  46. “U.S., U.K. Politicians Eye Strategic Aims of Trans-Atlantic Trade Talks,” Wall Street Journal, September 25, 2013. See generally Daniel Hamilton and Steven Blockmans, “The Geostrategic Implications of TTIP,” Centre for European Policy Studies, April 2015.

  47. David Sanger, “Obama Order Sped Up Wave of Cyberattacks against Iran,” New York Times, June 1, 2012.

  48. David E. Sanger, “U.S. and China Seek Arms Deal for Cyberspace,” New York Times, September 19, 2015.

  49. John Williamson, “The Dollar and U.S. Power,” in The Power of Currencies and the Currencies of Power, ed. Alan Wheatley (New York: Routledge, 2013), 82–84.

  50. “President Prepares to Meet King as U.S.-Saudi Divisions Deepen,” National Public Radio, March 27, 2014.

  51. There was no budget request for MENA-IF in FY12.

  52. Josh Rogin, “State Department Tries Again to Create Arab Spring Support Fund,” Foreign Policy, April 10, 2013.

  53. The Senate bill approved $1 billion for MENA-IF; the House bill, however, zeroed out the request such that no funds were appropriate for the MENA-IF for FY13.

  54. See Danya Greenfield, Amy Hawthorne, and Rosa Balfour, “U.S. and EU: Lack of Strategic Vision, Frustrated Efforts toward the Arab Transitions,” Atlantic Council, September 2013.

  55. Assessments of the FY15 budget request suggest that the current Obama administration continues to distance itself from the MENA-IF model in particular, but continues to prioritize transition and reform programs in the region (totaling $1.575 billion) in pursuit of the same geopolitical objectives. “Analysis of the President’s FY15 International Affairs Budget Request,” U.S. Global Leadership Coalition, March 4, 2014, 8.

  56. Author interviews with former administration officials.

  57. The authors are indebted to several former government officials for a series of discussion on MENA-IF and MENA-TIP.

  58. Joseph J. Collins and Gabrielle D. Bowdoin, Beyond Unilateral Economic Sanctions: Better Alternatives for U.S. Foreign Policy (Washington, D.C.: Center for Strategic and International Studies, 1999).

  59. Jesse Helms, “What Sanctions Epidemic? U.S. Business’ Curious Crusade,” Foreign Affairs, January/February 1999; Helms, Empire for Liberty: A Sovereign American and Her Moral Mission (Raleigh, N.C.: Jesse Helms Center, 2001), 96.

  60. U.S. Department of the Treasury, Resource Center on Sanctions Programs and Country Information, available at www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx.

  61. Geoff Dyer, “Sanctions: War by Other Means,” Financial Times, March 30, 2014.

  62. Baldwin, Economic Statecraft; John Cassidy, “Iran Nuke Deal: Do Economic Sanctions Work after All?,” New Yorker, November 25, 2013.

  63. Richard Youngs, “Armenia as a Showcase for the New European Neighborhood Policy?,” Carnegie Europe, April 2, 2015.

  64. See Stephen Blank, “Russia’s Unending Balkan Intrigues,” Eurasia Daily Monitor 12, no. 108 (June 10, 2015); Stephen Blank, “Putin Sets His Eyes on the Balkans,” Newsweek, April 17, 2015; Andrew Byrne, “Serbia Caught between Russia and West,” Financial Times, December 3, 2014.

  65. Government Accountability Office, Iran: U.S. and International Sanctions Have Adversely Affected the Iranian Economy, February 2013, summary section.

  66. Ibid., 18.

  67. Wolfgang Münchau warned that “even the current list of sanctions could be macroeconomically significant in a way not captured by forecasts or sentiment surveys. My guess is that the cumulative global effect of the sanctions will be much stronger than estimated but that it might be a while before they kick in fully. In short: we should not see this as a decimal point disturbance.” Wolfgang Münchau, “The West Risks Collateral Damage by Punishing Russia,” Financial Times, July 27, 2014. A Deutsche Bank research piece from March 2014 claimed that potential spillover effects from further financial sector sanctions on Russia are impossible to quantify: “Note that beyond asset freezes or deterioration in credit worthiness, the international financial system may have to deal with the potential disruptions stemming from a possible ban on trading with Russian financial institutions. This could have implications for liquidity and profits, but data on this type of relationship is too patchy to make any attempt at quantification worthwhile.” Gilles Moec and Marco Stringa, “Who Is Exposed to Russia?,” Deutsche Bank Research, March 20, 2014. Daniel Gilbert argues that additional energy sector sanctions would threaten one of Exxon’s “best chances to find and tap valuable—and much needed—crude oil reserves; “Sanctions over Ukraine Put Exxon at Risk,” Wall Street Journal, September 11, 2014. Finally, another bank report predicts that commodity market shocks could ensue from energy sector sanctions: “So far, commodity markets have been relatively untouched by the crisis. However, there is a risk that new sanctions on Russia may constrain the country’s exports, as has been the case with the sanctions on Iran. In such a scenario, the above-mentioned markets could face a supply disruption, which could push up prices significantly.” Danske Bank, “Research Global: Russian-Ukrainian Crisis Takes a Tragic Turn,” July 18, 2014. Additional sanctions were leveled later that summer, and by fall global oil and gas touched their lowest prices in years.

  68. Indeed, revised estimates issued roughly twelve months after the sanctions took effect suggest the more aggressive sanctions negatively impact European GDP growth by less than half a tenth of a percentage point. Laurence Norman, “EU Projects Impact of Sanctions on Russian Economy,” Wall Street Journal, October 29, 2014; Vauhini Vara, “Hurt Putin? Hurt Yourself?,” New Yorker, August 19, 2014.

  69. Dan Lamonthe, “France Backs off Sending Mistral Warship to Russia in $1.7 Billion Deal,” Washington Post, September 3, 2014: “The decision marks a turnaround for France, which signaled as recently as Monday that it intended to complete the sale. Pressure had been building on Paris to hold the ship back, however, especially after NATO said it had determined that Russia has sent troops and military equipment into Ukraine. French officials have spent years defending the arms sale, in which France beat out rival nations like Germany and Spain to sell ships to the Russians.” See also Kate Brannen, “France’s Ship Sale to Russia Latest Example of Commerce and Policy Clash,” Foreign Policy, July 23, 2014: “State Department spokeswoman Marie Harf called the French sale ‘completely inappropriate. We obviously don’t think the Mistral should go ahead.… We don’t think anyone should be providing arms to Russia.’ ”

  70. Sam Jones and Geoff Dyer, “Iran Sanctions Eased as Deal Stick,” Financial Times, January
20, 2014.

  71. Jason Rezaian and Anne Gearan, “U.S., Europe Lift Some Iran Sanctions under Nuclear Deal,” Washington Post, January 20, 2014.

  72. Susan B. Epstein, “The Budget Control Act, Sequestration, and the Foreign Affairs Budget: Background and Possible Impacts,” Congressional Research Service, December 20, 2013.

  73. Ursula Lindsey, “Rebels without a Pause,” New York Times, May 21, 2103; Tarek Masou, Counting Islam: Religion, Class, and Elections in Egypt (Cambridge: Cambridge University Press, 2014), 210. “Economic grievances pose the greatest threat to Mursi’s rule,” warned Yasser el-Shimy, a Cairo-based analyst with the International Crisis Group, just ten days prior to his removal. Mariam Fam and Alaa Shahine, “Egypt’s Unemployed Target Mursi after Toppling Mubarak: Jobs,” Bloomberg Business, June 24, 2013.

  74. “The Great Well of China,” Economist, June 20, 2015.

  75. It is worth noting that the original terms of the 1979 Camp David accord promised only to give funds to Israel and Egypt for three years. With this aid still flowing some three and a half decades later (and on terms largely unchanged), it is a reminder that once a geopolitical issue finds a toehold in the U.S. Congress, it can prove difficult to pull back.

  76. Consider the Israeli government’s reaction to the violence that seized Egypt during the summer of 2013. As the violence worsened, sparking doubts about whether the United States would continue aid in the face of a bloody crackdown by the Egyptian military, Israeli prime minister Benjamin Netanyahu expressed confidence in continued American support, noting that “peace was premised on American aid to Egypt, and I think that for us is the most important consideration. And I’m sure that’s taken under advisement in Washington.” Michael R. Gordon and Mark Landler, “In Crackdown Responses, U.S. Temporarily Freezes Some Military Aid to Egypt,” New York Times, October 9, 2013.

  77. Nolan Feeney, “U.S. Offers Congo $30 Million, on Condition President Steps Down,” Time, May 4, 2014.

  78. Geoff Dyer, “US Restores $1.3bn Military Aid to Egypt,” Financial Times, April 1, 2015.

  79. Benn Steil and Robert Litan, “International Financial Statecraft,” Council on Foreign Relations Special Report, August 2006.

  80. Board of Economic Warfare, later renamed the Office of Economic Warfare. For a detailed history, see Jeremy Atack and Peter Passell, New View of American Economic History, 2nd ed. (New York: Norton, 1994).

  81. Members of the National Commission on Terrorist Attacks on the United States (9/11 Commission) gave the campaign against terrorist financing an A- in the commission’s 2005 review of the implementation of its recommendations. That was the highest grade it gave for any aspect of the war on terrorism. For a discussion, see Council on Foreign Relations, “Terrorist Finance,” 2002, http://www.cfr.org/publication.html?id=5080.

  82. Ibid.

  83. Author exchange with private sector commentator, May 2012.

  8. The Geoeconomics of North America’s Energy Revolution

  1. This chapter is drawn from Robert D. Blackwill and Meghan L. O’Sullivan, “America’s Energy Edge,” Foreign Affairs, March/April 2014, and has profited from recent work by Dr. O’Sullivan on the subject. It also has benefitted from multiple insights on the draft by Dr. Drew Erdmann and Dr. Panos E. Cavoulacos.

  2. As some expert analyses note, it is not just the United States that happens to have a lot of shale gas; rather, it is the United States that is the first major economy to start exploiting the geopolitical advantages of shale on a large scale. Matthew Lynn, “Shale Gas Revolution Will Create Winners, Losers,” MarketWatch, August 7, 2013; Ed Crooks and Anjli Raval, “US Poised to Become World’s Leading Liquid Petroleum Producer,” Financial Times, September 29, 2014.

  3. We have witnessed a transformation from resource scarcity to resource abundance, thanks to the U.S. oil and gas industry’s technological and entrepreneurial prowess. The resulting surge in supply means that the global energy sector will began to behave like a “more normal market, in which demand and supply are in better balance and less power is concentrated in the hands of producers.” Ian Bremmer and Kenneth A. Hersh, “When America Stops Importing Energy,” New York Times, May 22, 2013.

  4. “How Much Natural Gas Does the United States Have and How Long Will It Last?,” U.S. Energy Information Administration, December 3, 2014.

  5. “Market Trends: Natural Gas,” Annual Energy Outlook 2014, U.S. Energy Information Administration, May 7, 2014.

  6. “Shale Gas Provides Largest Share of U.S. Natural Gas Production in 2013,” U.S. Energy Information Administration, November 25, 2014.

  7. Stanley Reed, “Oil Prices Drop as Production Hums Along despite a Brimming Supply,” New York Times, March 13, 2015; Henry Srebrnik, “Will American Self-Sufficiency in Oil Affect Its Foreign Policy?,” Journal Pioneer, March 29, 2015.

  8. Daniel Yergin, “The Global Impact of US Shale,” Project Syndicate, January 8, 2014.

  9. Bakken, Eagle Ford, and Permian are the names of shale formations. Such formations typically cover several counties, states, or sometimes countries. “U.S. Field Production of Crude Oil,” data set from U.S. Energy Information Administration, November 26, 2014; Wood Mackenzie, “Global Geopolitics Reshaped by North American Energy Independence,” press release, September 26, 2013.

  10. Also see “Shale Oil: The Next Energy Revolution,” PricewaterhouseCoopers, February 2013.

  11. The combination of U.S. oil and gas production is projected to outpace Russia’s by 5 billion BTU in 2013, according to EIA forecasts cited in John Waggoner, “Report: U.S. to Be Top Energy Producer This Year,” USA Today, November 12, 2013.

  12. EIA and NERA use 6 billion cubic feet per day in many scenarios and reports: http://energy.gov/fe/downloads/lng-export-study-related-documents. Also see Meghan L. O’Sullivan, “A Better Energy Weapon to Stop Putin,” Bloomberg View, March 11, 2014; Zain Shauk, “U.S. Natural Gas Exports Will Fire Up in 2015,” Bloomberg Businessweek, November 6, 2014; “Effect of Increased Levels of Liquefied Natural Gas Exports on U.S. Energy Markets,” U.S. Energy Information Administration, October 29, 2014; Roger Howard, “How Shale Energy Reshapes American Security,” National Interest, May 3, 2013.

  13. International Energy Agency, World Energy Outlook 2013, 564.

  14. Meghan L. O’Sullivan, “ ‘Energy Independence’ Alone Won’t Boost U.S. Power,” Bloomberg View, February 14, 2013. Robert McNally and Michael Levi, “Vindicating Volatility,” Foreign Affairs, November 4, 2014.

  15. Matt Clinch, “Oil Falls below $45 as OPEC Plays Hardball,” CNBC, January 13, 2015; “A U.S. Oil Production Slowdown Eases OPEC’s Mind,” Stratfor Global Intelligence, December 12, 2014; “Lower Oil Prices Carry Geopolitical Consequences,” Stratfor Global Intelligence, November 3, 2014; U.S. Energy Information Administration, “Short-term Energy and Winter Fuels Outlook,” October 6, 2015; Nicole Friedman, “U.S. Oil Prices Hit Fresh Six-Year Low, Dipping Below $40 a Barrel,” Wall Street Journal, August 21, 2015; “ ‘The New Oil Order’: Making Sense of an Industry’s Transformation,” Goldman Sachs, December 2015.

  16. Ben Sharples, “Goldman Sees Oil at $45 by October after ‘Self-Defeating Rally,’ ” Bloomberg Business, May 19, 2015.

  17. John Baffes, M. Ayhan Kose, Franziska Ohnosrge, and Marc Stocker, “The Great Plunge in Oil Prices: Causes, Consequences, and Policy Responses,” World Bank Group, March 2015.

  18. “OPEC: Monthly Oil Market Report,” June 10, 2015; “OPEC Refuses to Cut Oil Production,” CNN Money, June 5, 2015; Summer Said, “Saudi Arabia, Iraq Push OPEC over Its Ceiling,” Wall Street Journal, June 10, 2015.

  19. “New Oil Order: Energy and Utilities Investment Strategy. Rise of Shale Pushing OPEC from Cut to Grow; Stay Selective Post Meeting,” Goldman Sachs Equity Research, June 8, 2015.

  20. Indonesia, a net energy importer, is perhaps the one exception.

  21. Martin Feldstein, “The Geopolitical Impact of Cheap Oil,” Project Syndicate, November 26, 2014. Also see “When Oil Price
s Drop, Some Countries Lose,” Stratfor Global Intelligence, November 4, 2014.

  22. Many of these countries have regimes that could potentially collapse if the economy—spurred by oil price shock—runs into serious trouble. Lynn, “Shale Gas Revolution Will Create Winners and Losers.”

  23. While experts argue that neither U.S. LNG nor domestic European shale gas production will supplant Russian gas imports, given how cheap piped Russian gas is, the U.S. unconventional energy boom can affect Russian revenue streams by putting pressure on oil indexation, which has been Russia’s preferred basis for pricing gas sales to Europe and has helped keep prices high. Meghan L. O’Sullivan, “North American Energy Remakes the Geopolitical Landscape: Understanding and Advancing the Phenomenon,” Goldman Sachs, May 31, 2014; Morena Skalamera, “Booming Synergies in Sino-Russian Natural Gas Partnership,” Belfer Center for Science and International Affairs, Harvard University, May 2014; Ariel Cohen and Anton Altman, “U.S. Shale Gas: The Geopolitical Impact,” Heritage Foundation, July 28, 2011.