Chokepoints and Economic Warfare with Edward Fishman
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Welcome back. I'm Max Bergman, director of the Stuart Center and Europe-Russia-Eurasia program at CSIS. And I'm Maria Snegovaya, senior fellow for Russia and Eurasia. And you're listening to Russian Roulette, a podcast discussing all things Russia and Eurasia from the Center for Strategic International Studies.

Hello everyone and welcome back to Russian Roulette. I am your host Max Bergman, today with my co-host Maria Snagovaya and a good friend of the pod Eddie Fishman. Eddie is a repeat offender here on Russian Roulette, has been a guest a number of times. He's a former colleague of mine from the State Department Policy Planning Office where we shared an office that I think one of our friends has basically called the frat room of SP of policy planning. Eddie served in the Obama administration

at the State Department, at the Department of Defense, and the Department of Treasury. And today he teaches at Columbia University School of International and Public Affairs.

and is a senior research scholar at the Center on Global Energy Policy. But most importantly, and this is what we're going to discuss today, is Eddie's current new book, which is on the New York Times bestseller list. Eddie, congratulations. It's titled Choke Points, American Power in the Age of Economic Warfare. It is truly fantastic. You can find a link in the episode show notes and you can pause this podcast right now, go to Amazon or wherever you buy your books, maybe not Amazon, and

by choke points. It's really fantastic. And so today we're going to talk to Eddie about this book, about the role he sees sanctions policy and economic statecraft playing in American strategy. And to tie this back to what this podcast is all about, which is Russia and lessons learned about Russia sanctions and what some of the things that he sees going forward when it comes to the Russian economy

and potentially efforts to alleviate sanctions on Russia as we have an ongoing effort to negotiate peace between Russia and Ukraine. So, Eddie, let's dive right in. Welcome back to Russian Roulette. Max, Maria, thank you so much for allowing me to come back. That's always a good sign where, you know, I get invited back. I hope I didn't do too bad of a job last time. No, no, you're going to be back again and again and again. So thank you for being here. Eddie, maybe we could start with a broad overview of the book.

Explain what it's about, why did you write it, and let's go from there. So in the broadest possible terms, Chokepoint is about how the era of globalization in the 1990s, the era that I grew up in, gave way to what I call the age of economic warfare, which is what I call the current era that we're living in, in which sanctions, tariffs, export controls

have become the primary way that great powers compete with one another. And sometimes it's hard for us to appreciate just how big of a shift this is. But during that period of globalization, there was this sense that governments really didn't interfere in the economy at all.

And when you think about it, sanctions, tariffs, export controls are really tremendous and extraordinary moves of government intervention to redirect capital flows, redirect trade flows to try to advance American foreign policy interests. In terms of what motivated me to write the book, Max, it actually, you know, Sam's

from that experience you mentioned in your intro when I was working at the State Department in the wake of Russia's 2014 invasion of Ukraine and annexation of Crimea. And I remember being in the Situation Room debating what to do about the Russian invasion of Ukraine. And when we were debating whether or not to arm the Ukrainians, there's a discussion should we be giving them javelins?

Ultimately, President Obama decided not to do that. But during that debate, I remember distinctly just how intense the opinions were from everyone around the table. The Pentagon, the Joint Staff, the CIA, the State Department, the NSC, everyone came fully briefed with really informed and really interesting opinions and ultimately driving toward a decision.

But whenever we would talk about sanctions or economic statecraft, oftentimes the room would just go kind of quiet. And at most, maybe one or two people would speak up with an informed opinion and everyone else would kind of sit there, you know, almost looking like they weren't sure exactly what was being talked about.

And it struck me at the time that despite the fact that we were relying on sanctions for really ambitious goals, stopping Iran from getting a nuclear weapon or forcing Russia to backtrack from the territory it had seized in Ukraine, that we didn't really fully appreciate them. We didn't understand how they worked, even at the heart of the U.S. government.

I thought that this was a real problem and that in order for the United States to succeed in this age of economic warfare, we really need to up our game. We need to understand what has worked, what hasn't worked, how we got here. And I'm hoping that choke points can be a small contribution in terms of getting people up to speed in the US foreign policy apparatus, but also broadly in the United States

to kind of understand this age of economic warfare and be able to make and form their own informed opinions. One of the really interesting aspects of it, I think, is the tension that you outlined that sort of exists between, especially on the economic side of the house, the belief in globalization in free markets, and then the national security folks from the other part of the house coming in and sort of saying, okay, well, maybe we can try to do something here. We can try to

use this as leverage, starting with the global war on terror? How do we crack down on terrorist financing? But then it goes into Iran. Then we're talking about Russia. And then you start to see pushback from the economic side of the house concerned that by exploiting the U.S. position in the global financial system, our economic status, that we're exploiting these choke points, as you say, that that could lead to backlash. Maybe you could talk a little bit about the tension there between the kind of

Treasury side, economic side, Wall Street versus kind of the harder edge national security side that begins to discover these tools as being a really convenient alternative to going and bombing Iranian nuclear sites.

Yeah, so maybe to start, it'd be helpful to explain what a choke point is, because I think this is really essential to understanding what's different about economic warfare today. So a choke point is a part of the global economy in which one country has a dominant position, and there are few, if any, substitutes. And critically also, it would take a little while, take years potentially, to build a really viable alternative to this choke point.

So an example I'll give is, you know, maybe let's say China were to dominate the apparel industry and manufacture more t-shirts than anyone else. If China were to cut off the U.S. from t-shirts, it wouldn't take very long for, you know, people to set up factories making t-shirts in some other country, right? But if you compare that with something like the dollar, which is, you know, 90% of foreign exchange transactions, 60% of foreign exchange reserves, 70% of global equity market capitalization is

dollar denominated, it would be very, very difficult to replace that in any reasonable timescale. And so being cut off from the dollar is very, very challenging if that happens to you as a globally oriented company. So in terms of why this tool is so appealing, I mean, if you go back to economic warfare in the 1990s, right, in the brink of sort of what I call the age of economic warfare, when

When the UN imposed an embargo on Saddam Hussein's Iraq, which some people may remember, this was Iraq sanctions that tried to stop Iraq from selling oil in global markets all the way from 1990 when Saddam first annexes Kuwait to 2003 when Bush invades Iraq for the second time.

The way that that was actually implemented was through a multinational naval blockade. You had naval ships patrolling the Persian Gulf 24/7, inspecting cargoes of Iraqi ships coming in and out of their ports. And just think about the challenge that that was. It was basically being commanded by the Pentagon. It was just another part of military force.

But with these advent of these choke points that really come to fore in the 1990s in the wake of hyper-globalization, you now have a system where the president or even lower level officials like the director of OFAC at the Treasury Department can sign a document and impose dramatic economic pain on a foreign country. So if you think about it from the perspective of an American official, you know, the threshold for the use of really significant economic warfare has gone significantly down. You no longer have to do naval blockades like we did in the 1990s.

But the impact has gone significantly. So that is why I think the national security people, as you mentioned, Max, have been so tempted into the use of economic warfare. And I think by and large, it has frightened a lot of the more traditional economics folks who've worked in the US government, who viewed this as sort of a perversion of how free markets are supposed to work. And by the way, they are right. This is not how free markets are supposed to work. But I think

One of the arguments I make in the book is that's because we embraced this idea of free market globalization in the 90s when we assumed we weren't going to have any geopolitical competition. And so what we have now is that the global economy is still sort of based on this system that looks like the 1990s, but we're living in a much more difficult period for the geopolitical environment right now.

We're going to tilt toward Russia in a second, but let me ask about Iran, because I think it's an interesting connection that you draw from Iran to then Russia sanctions. Part of what seems that really makes sanctions the kind of modern tool it is, is the effort to kind of squeeze Iran that was really congressionally driven, that was then forcing US officials. And you document the kind of back and forth very clearly and colorfully by tracking a number of

U.S. officials, the kind of those at the kind of creation of this economic warfare tool. But they're being pushed by Congress because Congress, from a bipartisan perspective, frankly, hates the Iranians and wants to squeeze them. And so maybe you could talk about how Iran then becomes this kind of major use case and then what that impact that then has when Russia invades Ukraine the first time in 2014 and then how leaders then suddenly picked up the sanctions tool then.

Sure. So I think it's helpful maybe to go back to 2004 during the George W. Bush's reelection campaign, and actually going back to his first presidential debate he has with John Kerry. And at the time, just to give everyone sort of understanding what's happening, the US is already fighting wars in Afghanistan and Iraq. We had invaded Iraq ostensibly because Saddam Hussein was developing nuclear weapons. And literally hours before this debate starts,

The Iraq survey group comes out with this final report saying that Saddam doesn't have any nuclear weapons. And yet at the same time, it's very clear Iran does have a legitimate nuclear enrichment program. And so this puts the Bush administration in a bit of an awkward position in that they literally just invaded Iraq to try to get rid of a nuclear weapons program that didn't exist.

And Iraq's more powerful neighbor, bigger and more powerful neighbor, literally does have two pathways to a nuclear bomb, both a plutonium and a uranium pathway to a nuclear bomb. And so this question is asked to Bush and Kerry, like, what are you going to do about Iran? Because no one wanted to fight another war in the Middle East. And Kerry's like, I'm going to do sanctions against Iran. And Bush has this incredulous look on his face. And he's like, what?

What? Like we've already sanctioned Iran. We cannot sanction them anymore. This is literally what he said in 2004. And I think at the time, that's because the paradigm for hard hitting sanctions was really like what we did against Iraq in the 90s. We would have to commit to putting the Navy in the Persian Gulf and stopping Iran from selling oil and getting the UN Security Council to endorse a full scale embargo, which was never going to happen because the UN didn't support that kind of sanctions against Iran.

And so Stuart Levy, who was Bush's top sanctions official at the Treasury Department, hears Bush say this, and he kind of takes it as a personal challenge. He's like, there's got to be something I can do. It can't just be totally hopeless. It actually happens that after Bush is reelected, Levy is at a hotel in Bahrain flipping through the Financial Times when he comes across an article about a Swiss bank that has cut off ties with Iran of its own volition.

And he kind of has this light bulb moment where he realizes he can just go talk to banks in places like London and Frankfurt and Dubai and Singapore and Hong Kong,

bring with him dossiers of declassified intelligence, showing them how their banks are being used to funnel money into Iran's nuclear program or to fund Hamas and Hezbollah, and persuade nine out of 10 of them of their own volition not to do business with Iran, basically of the sheer reputational harm that it might get out that they're bankrolling Iran's nuclear program. And for the one out of 10 who aren't persuadable, Levy can threaten to cut them off from the dollar using kind of that choke point we talked about earlier before to say, look,

If you don't leave Iran, you're going to lose access to the dollar. And so Levy launches that strategy in 2006. He really pursues it all the way through 2011. So he's reappointed by Barack Obama, which might sound quite strange for Washingtonians today that you'd have a Republican lawyer who's reappointed by a Democratic president, by Barack Obama. And during that five-year period, he really successfully isolates Iran from the entire international financial system.

That is when, Max, we get to the point where Iran is

The one thing that they keep doing that is keeping their economy afloat is selling oil. So interestingly enough, there's a bit of a parallel between Russia today. And that's really when Congress has to step in and say, you know what? It's not enough just for Iran to be financially isolated. We really need to stop them from selling oil. And they start passing these really draconian sanctions bills over President Obama's veto. And what the kind of sanctions technocrats in the Obama administration do is they sort of translate those

congressional, the hawkishness from Capitol Hill into workable solutions to reduce Iran's oil sales, to essentially channel over $100 billion of Iran's oil proceeds into these restricted bank accounts. And that winds up giving us both the leverage that we need to negotiate the nuclear deal, and critically, it sends Iran into a dramatic recession in 2012 and 2013. And thankfully, with some sort of historical luck,

happens to coincide with an election in Iran in June of 2013, when Hassan Rouhani is elected basically because he argues that they should negotiate on the nuclear program to get the sanctions lifted. So that is sort of what happens. And just one quick final point before turning it back over to you, you asked how it intersects with Russia.

The day that we actually get the joint plan of action, which freezes Iran's nuclear deal, November 24th, 2013, it's really a landmark moment. I remember it just because I was working on Iran sanctions at the time. And we were all shocked that this had actually worked, that we had been able to translate economic pressure into freezing Iran's nuclear program. And that was actually the same day that for the first time you had 100,000 protesters flood the Maidan in Kiev during the protests against Yanukovych. So if

If you think about it, sort of the peak of American confidence in sanctions really coincides with the start of the crisis that would, within a couple of months, lead to Russian annexation of Crimea. Fascinating connection. Thank you very much, Eddie, and especially for flagging to our audiences the fact that sanctions do actually deliver, right? I see a lot of skepticism around, and I think it's very important to flag those connections.

Yes, it may be short-term to medium-term gains. You cannot fully alter a country's behavior, but similarly, you can meaningfully affect some of the policies, at least in the short term. Which brings me precisely to Russia, and thank you for already making that connection. In your book, you do flag that, in fact, in the Russian case, the 2014 sanctions that actually followed Russia's annexation of Crimea, which

which followed the Yom Ha'Ada and protests to the EU flag, were actually stronger than is usually seen by the public. Could you please comment on that? That's actually very interesting to me since I myself have published quite a lot on the related topics. Sure. So maybe quickly just to comment on your first point, which is sanctions can deliver. I think it's important to note that Stuart Levy launches this really new financial economic warfare campaign against Iran in 2006.

And we freeze Iran's nuclear program in 2013 and get the final deal in 2015. So it's seven years to the first deal and nine years to the final deal. So for those who are feeling, hey, wait, you know, three years since the full-scale invasion of Ukraine, why haven't we gotten a deal yet? You know, these things can take some time. And I think, you know, sanctions don't work overnight. In terms of the 2014 sanctions, you know, this was an incredibly challenging problem because

because we just were not prepared, right? It's not like the Iran nuclear program, even though it was a top most foreign policy and national security priority, it was sort of a slow moving crisis, right? It wasn't like Iran was racing for the bomb. They're gradually building their enrichment capabilities over time. With Russia, you know, we sort of showed up at the State Department in late February 2014 and watched on TV as the little green men were hoisting the Russian flag over government buildings in Sevastopol.

And we were learning about it at the same time as everybody else was, you know, in the world, right? There was no preparation. We had no sanctions ready to go. So we were constantly working from behind. We were far behind events. And if you remember, Maria, only two weeks later is when the Duma formally annexes Crimea. So there's very little time window to really stop that from happening.

And then to Max's earlier point about concerns about economic blowback, Russia's economy is the eighth largest in the world at the time. It's bigger than all the other economies under sanctions combined. They're the biggest fossil fuel exporter in the world. Europe is completely dependent on Russian gas and Russian oil as well. And so there's a lot of concerns that doing Iran-style sanctions on Russia would send Europe into a recession and maybe the US into a recession as well. And so we sort of need a new playbook. And

It takes a while for Dan Fried, who's the State Department sanctions coordinator at the time, to build this coalition of the willing with a handful of European countries, the EU, you know, with Japan, Australia, several others, that is really willing to even just talk about sanctioning Russia. In terms of the sanctions themselves, we finally land on a proposal that everyone can support in July of 2014. And the concept we come to is that instead of

cutting off Russian businesses entirely from the dollar and from the euro, we're just going to cut them off from capital markets. So, you know, Russian banks and companies at the time had something like $700 billion in dollar and euro denominated debt obligations as of 2014. And so the idea was if we would block them from raising new debt on Western capital markets, that they would be forced to pay down those debts, that they wouldn't be able to roll over them as they normally do. And

And so companies like Rosneft would have to take the cash that they were generating by selling oil to actually pay down their debt. And as a result, they wouldn't be able to invest in growth. And so the concept at the time, the way we sold it to the Europeans was that the sanctions wouldn't cause an immediate economic crisis in Russia, but they would narrow Russia's economic horizons. Of course, though,

A key point about economic warfare is that government policy is only part of the equation and other macroeconomic factors matter. And in the second half of 2014, the global oil price collapses. It falls from over $100 a barrel to something like $50 a barrel within a matter of months.

And so if you just think about it from the perspective of Russia, I was mentioning Rosneft having to pay down its debt and that they were going to rely on their cash flows to pay down their debt. Well, all of a sudden, if the global oil price is cut in half, their cash flows now have been cut in half. And so Russia winds up falling into this really dramatic economic crisis. I think in some ways it's sort of forgotten by history.

that in the winter of 2014, 2015, it was very bleak in Russia and their economy is declining at an annualized rate of 10% that December and January. And there's actually even some evidence, I mean, it's hard to prove one way or the other, that this economic pain that Russia is experiencing actually translates into some political moves that happened in the Kremlin. Because on January 1st, 2015, the purported head of the Donetsk People's Republic formally says that they know

They no longer plan to build Novorossiya. That Novorossiya was a dream that was never to be or something like that. And so you start seeing a scaling back of the rhetoric of the ambitions that the quote unquote separatists have in terms of what they want to do in eastern Ukraine. And so maybe one final point on that is, you know, in the midst of this really terrible economic crisis that Russia is experiencing that winter,

There's a debate whether or not to ramp up the pressure, whether to impose more sanctions, whether to reconsider arming the Ukrainians. And really, I think at the time was when we made our really key mistake, because I think the Europeans saw what was happening with Russia, and instead of seeing it as an opportunity,

instead of thinking that we could deliver a knockout blow, maybe actually push the Russians out of the Donbas entirely, they were worried that this economic crisis was going to re-inflame the Eurozone crisis. And so that's when Angela Merkel and Francois Hollande, the German and French leaders, go to Minsk to negotiate with Putin and Petro Poroshenko, the Ukrainian president, and get the Minsk ceasefire in February of 2015, which of course is violated as it's being signed, right? I mean, Debaltseva is taken...

days after that signed. There's no response at all in terms of sanctions. And then a few months later, we get the Nord Stream 2 pipeline deal. So I think the tragedy of the 2014 Russia sanctions is that they worked a lot better than we expected. We had Russia in a very good position to potentially get a deal if we were willing to kind of carry through with the pressure. But instead, it wound up sending this message to Putin that we just didn't have the backbone to actually prosecute a serious economic war against Russia. Unfortunately, Salman,

disturbing parallels with the current moment, but to kind of reinforce some of these parallels in an interesting reversal of fortune, reversal tables, if you will. You described that back in the days, it was the Americans who pushed their European counterparts, our European counterparts, into adopting more sanctions on Russia.

Back in 2014, and particularly prominent role played by our friend and colleague, Ambassador Daniel Freed. Could you talk just a little bit about the role that he played and why it needed some convincing of our European allies to impose more sanctions?

Yeah, I mean, look, I think as of 2014, Europe is still really in the Eurozone crisis, right? It's not fully resolved by then. You still have the Greek debt crisis, which happens a year later. I mean, it's, you know, so the economic situation is tenuous. I mean, Europe has 10 times as much trade with Russia as the US does. They're also completely dependent on Russian energy. There are several European member states that are 100% dependent on Russian natural gas.

So, I mean, even as an American, I had to be a little empathetic and say, look, I understand why these European countries are nervous about sanctioning Russia. I think Dan Freed, you know, in some ways what happened was President Obama, his position was he was willing to do sanctions, but only willing to go at a pace that the Europeans would accept. He didn't want to get out in front of Europe.

And so what that meant for Dan, and actually, you know, I think this, the White House put this dictate in place because they wanted to constrain people like Dan Fried and Toria Newland who were pushing for a more robust response. I think Dan took that as kind of license to just spend 70% of his time in Europe going between capitals, trying to negotiate different deals that he could saying, okay, well, but this worked for you with this work for you.

And then basically his idea was, look, if I can get the Europeans to agree to something, I then can go back to the White House and say, look, the Europeans have agreed to this. And you've said that we can go at a pace that Europe accepts. So we will agree to it. So in some ways, Dan was hyper empowered by that directive by the White House. And I think the reason Dan was so effective, and I was lucky enough to spend a lot of time with him on those trips and see him operate up close is, you know,

he's very steeped in European history. He knows how to speak the language of a lot of these countries, both literally in that he has language skills, but also he understands their political and historical touchstones. And I think the thing I saw him do that was almost most impressive was he never tried to make anyone look bad or embarrass them. We would go meet with the Hungarians or the Slovaks who at the time were the sanctioned skeptics

And, you know, he would sort of steal our. Yeah, they still are. Or certainly the Hungarians, you know, you'd meet with them and say, look, you know, we just want your commitment to stay with this consensus. And he would get commitments oftentimes behind closed doors and talk to the media and talk about how the U.S. Hungarian relationship remains strong. They're still a valuable partner. And at the time, you wouldn't get any other U.S. official who's even willing to set foot in Budapest.

And so I think Freed did a very good job understanding that for each country, there's different domestic politics around Russia. And it required him to show up and to show respect, to listen. And look, the history speaks for itself. Now, 10 years later, plus 11 years later, we have not seen the Europeans basically go soft on sanctions, which is what I think has been the fear dating all the way back since 2014.

I wonder, Eddie, if you could sort of reflect on the efficacy of that first sanctions period on Russia. So 2014 to February 2022, you know, there were the sanctions done in the wake of Russia's initial invasion, the downing of MH17, then Congress in 2017, basically in response to Russia's interference in the U.S. election. I think some concerns about where the Trump administration was headed.

with a two-thirds majority past the CAATSA sanctions in 2017. I'm curious if you could characterize how effective you think the sanctions period was. What are some of the kind of lessons learned? What did we get right? What did we get wrong? Do we sort of stop implementing some of them? Did we need to do more? How would you kind of assess this eight-year period? Because, you know, Russia invades Ukraine. The sanctions weren't a deterrent to Russia launching that full-scale invasion.

Yeah, so I think the 2014-2015 sanctions were very impactful. As I mentioned earlier, they really sent Russia into a dramatic economic crisis. And it really wasn't until Minsk in February 2015, and then followed up by the Nord Stream 2 deal, that Russia started to stabilize a little bit.

the market perceived, okay, the direction of travel is that we're moving toward easing as opposed to strengthening. And I think that's something that's also very important is what is the economy, the global economy or global markets? Really, they're just the sum total of the business decisions of millions of different businesses and banks. And so sentiment matters. And I think that the first critical error, as I mentioned earlier, was that we didn't press our advantage in

the winter of 2014, 2015, when we had Russia against the ropes. I think the second critical error, and one that I think is very pertinent for the Trump administration and the Europeans right now, is that after we got Minsk, when the Russians violated it, we didn't penalize them for it. We sort of just, we kind of,

treated it as, okay, well, we have a ceasefire. And even if it is violated a little bit, we're not going to really significantly ratchet up sanctions. And so for Russia, the felt impact of the sanctions declined, even though we didn't lift them because they were adapting, but we weren't actually meaningfully strengthening them. I think the next big error happens in 2016, actually, at the very end of the Obama administration. People may forget, I know you don't, Max, that the Russians very flagrantly interfered in the 2016 US election.

And this had been going on for several months over the summer. And at the G20, Obama takes aside Putin and warns him and says, you know, if you continue interfering in our election, we're going to crash your economy. And lo and behold, you know, a month later, you get the Podesta emails and then some of the leaks that I think some people think could have been decisive in the lead up to the election in October and November. And Trump wins the election, as everyone knows.

And then Obama does virtually nothing. There are no meaningful sanctions to speak of at all, you know, between the lame duck period and Obama leaving the White House. And I think that's yet another kind of lesson for Putin that, you know, the threats that America makes, we can't take seriously. And then I think, you know, Trump comes in, Trump does absolutely nothing on Russia sanctions. I think that's something that's very important just for listeners to appreciate. We got no action at all over a four-year period.

CAATSA, the law that you mentioned earlier, Max, the significance of CAATSA really is that Congress is worried that Trump is going to unilaterally lift the Russia sanctions. And so they passed this law, giving Congress veto power over that. And so the

So that was probably the most impactful part of CAATSA. The other is that they forced Trump to do a bunch of other sanctions that he does somewhat halfheartedly. The most important of that is he adds Oleg Deripaska and Roussal to the SDN list in April of 2018, literally just because they're trying to answer the mail for CAATSA.

aluminum markets go haywire, and a day later, Trump completely backtracks. And so if you think about that, again, for Putin, it's like, as soon as there's a little bit of chaos and come out of these markets, the US backs down, even if Russia is not changing their policy at all. So I think that this is all to say that, you know, by the time we get to the fall of 2021, when Biden is putting together new sanctions ideas and trying critically to use the threat of swift and severe consequences and

what he said, quote, the most impactful sanctions that have ever been imposed to try to deter Putin from invading Ukraine. I do think Putin kind of takes all those words with a grain of salt because he kind of feels like he's seen this movie before. He knows how it plays out. The democracies in the West aren't willing to actually sustain really significant economic pressure on Russia. And even they're not willing to take, you know, a 10 or 20 cent increase in gasoline prices if that's what it takes to actually sanction Russia. So

I think the tragedy of that whole period is that the sanctions actually worked quite well. But, you know, politically, we gave Putin a number of reasons to doubt our resolve. Maybe before turning it over to Maria, it does also strike me that as the Biden administration entered office, so that the first, you know, nine months or 10 months of 2021, there were some initial sanctions, I think, in that, you know, in the spring of 2021,

But there wasn't the kind of strong reaction response sort of making up for the lack of action in 2016. We had learned a lot about how deep Russian interference was in that election through the course of Senate Intel reports, Mueller reports, all those things. And then the Biden administration comes in and decides that it's going to try to have a summit with Putin in June and park Russia to the side. And so I just don't think that I think there was a clear sense in

in Moscow that the administration didn't really care that much about it. And so it wasn't really willing to do deep sanctions and really wanted to focus on China. I just wanted to say, I agree with you, Max. Like, I think that, you know, I say in the book, I think it's COVID, climate change, and China, the three Cs, you know, those were his, Biden's priorities. And even Biden, who was, you know, probably the most hawkish American president on Russia in the post-Cold War era,

kind of decides that Russia is sort of a second order priority, prioritizes a quote unquote stable and predictable relationship. And so I do think that even Biden plays into this story by showing that Putin potentially gets a free pass for all the misdeeds.

In other words, it's similarly one particular kind of pattern that, Eddie, comes out from your description. It's ultimately the political factors, not the sanctions per se, right, that prevent more sustainable, consistent outcome, just because there's different considerations that come into play and effectively there's not enough consistency in the sanctions policy to ultimately sustain enough pressure. But before you answer that, I also wanted to fast forward towards 2022.

And of course, the unprecedented sanctions from quote-unquote hell, as described by Biden himself. Could you comment on that? Again, we see a lot of criticism about those sanctions. They did not deliver as promised. Russia economically is actually doing better than expected. We actually, as a matter of fact, about to release a report that covers Russia's economic situation over the last few years in a lot of detail. And while things are far from perfect, and certainly Russia is waiting a lot of its future resources,

So far, it is in far better shape and has demonstrated far even bigger growth of economy than expected.

So many analysts have asked if sanctions, you know, are the right instrument to deal with somebody who's so ideological and committed to basically take control over Ukraine as Putin. Basically, is he containable or is he deterrable by sanctions? What's your answer? Sure. So, I mean, I think the first goal of the sanctions was deterrence, right? It was to try to use the threat of the most severe sanctions that have ever been imposed

to persuade Putin that the benefits of invading Ukraine were not worth the costs.

And I think there are probably things Biden could have done better. I think he could have been more concrete about what the consequences were instead of leaving it up to Putin's imagination. But I also think that he was dealing with this bad legacy of, you know, seven years from 2015 to 2022, where we really hadn't done very much to make Putin believe that the West had the will to impose significant pain on him.

To be clear, Putin knew that we had the capability. There was no doubt, right? I mean, the sanctions of 2014, 2015 proved that the West had very significant capability to hurt Russia's economy. It was the will that he doubted. And the proof, by the way, that Putin underestimated the sanctions

is the Central Bank of Russia, right? I mean, the fact that 48 hours after the invasion starts, the G7 imposes sanctions on the Central Bank of Russia. You know, Avira and Abulina had accumulated $640 billion worth of reserves, ostensibly to sanctions-proof Russia's economy. And yet half of those reserves are sitting in Western bank accounts ready to be sanctioned.

And so you just got to think that had Russia assumed that within 24 or 48 hours of an invasion, that the West would sanction the central bank of Russia, they would have taken much more dramatic steps to diversify out of Western currencies. And even not, even if not, just putting it in cash, right? I mean,

literally putting the money into cash euros or cash dollars that then they bring into Russia or gold or RMB, right? I mean, these are things that they could have done. So I think that the first goal of the sanctions was deterrence, which failed.

The thing that's interesting though, is I think the actual sanctions that are imposed within the couple of weeks after the invasion starts are more impactful than many people expect. The Central Bank of Russia sanctions take Russia by surprise. They took me by surprise too as an analyst. I was surprised that the West was willing to go that far. And I think you saw significant dislocation in Russia in March of 2022. We kind of forget that now, but the Russian stock market was closed for an entire month

You had ATM lines in many, many Russian cities for over a week. You had capital controls. You had really, really harsh economic measures and a very, very difficult climate. That was when you had various estimates that Russia's economy might contract by 10% or 15%. So I think the initial salvo of sanctions was quite impressive and in some ways lived up to the hype.

I think where we went wrong was that we just didn't continue escalating. And this is in some ways a similar pathology to what we saw in 2015 in that other than the price cap, which we put in place in December of 2022, there's never a real serious attempt to go after Russian oil. It's viewed as kind of this part of Russia's economy that we just can't aggressively target.

were worried that it could wind up worsening inflation, which already is at a multi-decade high in the US, that it could raise oil prices. And I think that winds up being the Achilles heel of the sanctions. And just to give a very simple economic explanation of this, if you think about the Central Bank of Russia sanctions froze the stocks of the economy, the savings of the economy were frozen. But then the flows, the revenue coming into their bank account every day by selling oil was just allowed to persist.

unimpeded entirely for the first year of the war, and then with really minimal restrictions ever since. And I think that that has been a real huge, a big error. And I think one that I think Biden administration officials probably, if you were to talk to them, would at this point concede that they messed up on. I want to ask you sort of two things related to that. One, it does seem that U.S. sanctions policymakers were sort of caught by surprise by the V

vehemence of the European reaction that in if in 2014 Dan Fried had to go to European capitals and sort of beg them to do something that in 2022 there was a much stronger effort to kind of

to freeze the central bank assets and that the Russian central bank holding most of that money in euros was probably deliberate. They didn't think that the Europeans would ever go after them. So curious about how the European response sort of differed. And then I want you to talk a little bit more about the oil price cap, because that seems to be one of the more innovative aspects of what the Biden administration tried to do to keep Russian oil on the market, but forced the Russians to take

a haircut on the profits. I think the book is in some ways quite positive about that process. I think more positive than I probably am. And I think most analysts are. And I'm curious if, you know, perhaps were you more positive when you finished writing the book than you are now? I'm curious of just how you assess the oil price cap in terms of efficacy.

Yeah. So on your first point, the Europeans surprised everyone, right? I think that... And the Europeans surprised themselves, right? It wasn't necessarily the European leaders who woke up and said, we have to do this. It was that they woke up and they looked out their window and they saw hundreds of thousands of people in the streets saying that they need to cut Russia off from SWIFT and do all these terrible things to Russia's economy. I think it was in some ways like people power that moved the needle, right? And there's an anecdote I tell in my book,

book, Choke Points, where you actually had dock workers in places like Rotterdam and British ports who were refusing to offload Russian oil. So there's a period of time where there actually was significant self-sanctioning of oil, like an oil embargo from below. So if you just think about it, I think this is one of the things that makes me a little sad, honestly, is there was, I think,

a political opportunity for much broader sanctions on Russian energy, right? Where you probably would have had support and you could have made the argument that, sure, we're going to have a supply crunch. There's going to be higher prices, but the market will stabilize. That's how supply and demand works. With prices high, you'll have others who are pumping more oil. This will take three to five months. We didn't have that. There was no political leadership. And in fact, Joe Biden came out and said that the sanctions were explicitly designed to allow Russian energy to continue to flow, which I think

You read those words in retrospect, and it's just shocking to me and embarrassing, frankly, that he made those comments. I mean, frankly, there was a political calculation about the 2024 elections, 2022 midterms about oil prices. You kind of look back and say, really? Wrong bet. I agree. I agree. And look, inflation was obviously a really bad problem, but I don't think Biden made the right call there. And I do think he sort of sided with his political advisors over his national security team in that respect.

So just one thing to interject there is that in some ways, the Europeans were doing something similar when it came to not sanctioning natural gas. You know, they did not sanction Russian natural gas flows. And I still think it's not sanctioned today, but it got blowed up. So Europe then had to go through that really painful energy shock.

absorb it. But, you know, Europe is okay today, right? It got through it. But there was this effort to insulate the American public, I think, on the energy. Yes, right. I think that's a great example, right? I mean, the reason that Russian gas stops flowing to Europe initially is because Putin shuts it off. So Putin tries to use it as a sanction. Then, of course, there's the sabotage of the pipelines. But look, I mean, I think if you had asked anyone in March of 2022, like, would it be worse for Europe if they get cut off from Russian gas? Or would it be worse for America if like

You know, Russia sells a million barrels of oil less on global markets. You'd say, wow, it would be way worse for Europe. They're going to freeze or something. But, you know, I think we underestimate our adaptability. When it comes to the price cap, I mean, I do think it was quite a clever and innovative solution to a hard problem. I think there were other possible solutions on offer. I think that it's almost in some ways hard to describe why the price cap didn't work. But since this is a wonky podcast, I'm happy to get into it.

I think that really the problem with the price gap wasn't the idea that you could potentially cap the price of Russian oil. It was that you could do it using maritime insurance and shipping as the key choke points. So I mentioned earlier that a choke point is a part of the global economy where one country or a coalition of countries has a dominant position and there are few, if any, substitutes within any reasonable time period. I think there was an assumption that because 95% of global oil cargoes

were using Western insurance and a big percentage were using Western tankers that, you know, so long as you conditioned compliance with the price cap on using these Western services, that it would be relatively binding. I think the West underestimated how quickly Russia would be able to build workarounds, particularly by amassing its own shadow fleet of tankers. So it bought up a bunch of used old tankers that it could use so that it no longer had to use Greek

shipping companies. And then it started providing its own form of insurance, Sovereign Guarantees and other Russian insurance companies that had backfilled the P&I insurance from London. And

I think that if you go back in retrospect, and a question I ask myself a lot, and I know a bunch of former Biden officials do too, if you would actually from the start use the key choke point, which is the dollar and the threat of secondary sanctions and said to oil traders in Dubai that if you buy Russian oil for above $60 a barrel, you're going to be sanctioned, or refineries in India that they would be sanctioned if they bought Russian oil for above $60

I think the price cap would have worked much better. By the way, it did work for three to six months. But as I mentioned, these choke points exist in time, right? And it took three to six months for the Russians to mitigate them. I think if you had had the backstop of financial sanctions, I think they'd still work today. I think the question is, would the West have had the political will to ratchet down the price over time? I think it's proven that we haven't, right? I mean, the price has been at 60 since

December 2022. So I probably think in retrospect, there are better ways to do oil sanctions on Russia, many of which I feel like we've talked about in the past. But I do think that the price cap was a worthwhile endeavor and one that we just didn't give the necessary enforcement teeth to. I want to be cognizant of our time, but I cannot...

not ask you this important point that you make at the end of the book. I think with this proliferation of sanctions and the sanctions emerging as the new economic warfare tool in the world, not just targeted at Russia, but as we've discussed other countries as well, it's very important to create some sort of mechanism of coordination across our allies. And you do write about the possibility of this warfare committee, where people from different agencies like DOD, Treasury,

and others would serve for a certain number of years, get necessary training about leading economic and tech warfare, and perhaps push that expertise into more effective policymaking. Could you talk a little bit about that? Because I do believe that with the proliferation of sanctions, we do sort of need much more training and expertise, obviously.

Yeah, so we started our discussion by talking about, you know, the fact that I do believe we're living in an age of economic warfare and sanctions, tariffs, export controls. They're what the U.S. uses to compete. They're what China uses, what the EU uses, UK, Japan, Russia, to a certain extent. I mean, this is just the way that great power competition, you know, is played today.

today. And so my own view is that, you know, for the US to succeed in this type of an era, we can't be using the policy apparatus that really came out of 9/11 and the war on terror, right? Even to this day,

the top official at the Treasury Department on sanctions is called the Undersecretary of the Treasury for Terrorism and Financial Intelligence. And I think that just is an example of the fact that the sort of bureaucratic muscle we're using is really built for a different era. It's not built for the current era of great power competition. I think in an ideal world, you would basically create a body that would bring together the competencies that we have at places like the State Department. State Department does a bunch of sanctions.

the Treasury Department on sanctions, Treasury on CFIUS, the Commerce Department on export controls, parts of USTR that do tariffs. I basically bring them into a group that coordinates policy on a regular basis.

I think in the most ambitious form, you would actually create a whole separate government agency that brought all of these bodies together, maybe a Department of Economic Security, something that Japan, by the way, has already pursued. They have a cabinet minister for economic security. If we can't do that, I think doing a

standing interagency committee would be kind of the next best option, which I think is probably maybe a little bit more politically feasible. And I think that it's not just important for policy coordination, but also, as you mentioned, for honing talent, people who actually have the interdisciplinary toolkit you need to craft smart economic statecraft policies, and then also preparing for crises of tomorrow. I think

One of the challenges we have when it comes to sanctions and other weapons of economic warfare is we typically develop them on the fly. We're developing them as crises are occurring. I think we'd be much better suited if we had kind of a standing list of options and contingency plans for different crises. By the way, the way that the Pentagon does

If China were to invade Taiwan tomorrow, they have off-the-shelf plans for what we might do about that. We don't have anything like that for economic statecraft, and I'm hopeful that this is something the Trump administration sees fit to invest in. Eddie, I have one final question, and it sort of goes back to Iran, but really in the present context of the Trump administration's efforts to, well, negotiate a ceasefire in Ukraine, but it also looks like a potential bilateral economic agreement.

between the United States and Russia. There has been a lot of visits with Special Envoy Witkoff, Letnik, Howard Letnik, the Commerce Secretary being in Moscow, Kirill Dmitriev, the head of the Russian Sovereign Wealth Fund, getting his sanctions paused on him so he could come to Washington. And it looks like there's an effort to negotiate something that may lead to an economic rollback of sanctions. Now, I think that's probably a bad idea. I would not recommend that, particularly without kind of a

permanent peace agreement in place. And even then I would be hard pressed to say that that would be a good option. But maybe you could talk a little bit about how you see that playing out, a potential rollback of Russia sanctions, what that could mean for Ukraine, and maybe a little bit about the Iran experience of when there was a deal in place and sanctions were supposed to be rolled back and what happened? What were the impacts? And maybe what are some lessons learned there that you would apply to the present case?

Sure. So maybe just to start, it's always hazardous to make any predictions, but if I had to bet, I do not think we're going to see a unilateral lifting of American sanctions on Russia. I think for all of the efforts that Trump and Witkoff and Dmitriev are doing right now, I just don't see it materializing because I don't think that there really is much in it for the United States. Interestingly enough, Dmitriev has taken the tack that it's really energy opportunities for the U.S.,

But, you know, if you talk to any executive from the U.S. gas industry, if they're excited about the idea of, you know, American investment in Russian LNG and restarting Nord Stream 2, I mean, these are not things that are particularly good for the American natural gas industry. And so I'd be very surprised if you have unilateral easing of sanctions. I also think that, you know, whether or not this Lindsey Graham Senate bill actually has legs, right, where you've got apparently 70 senators ready to potentially pass Russia sanctions,

it does signal to me that there are lines that Congress may not be willing to cross. And if Trump actually were to try to lift sanctions on Russia in exchange for nothing of material concern with respect to Ukraine, that you may see a vote to try to block him vis-a-vis the CAATSA mechanism, because that CAATSA mechanism still does apply to the sanctions that are in place right now. I think one of the interesting lessons from the Iran experience, there are a couple that I think are relevant today.

One is that Iran didn't really get the relief from sanctions that they expected to. And I think that's because the US government is very good at turning off economic activity. It's very good at telling banks and companies the things that they can't do. But it's not quite as good as saying you should do this or you must do this, right? You can't tell Goldman Sachs that they need to open up a new office in Russia or something like that. You can tell them they have to leave Russia, but you can't force them to go into Russia.

My own view is if you were to get some sort of partial lifting of Russia sanctions, if my prediction is wrong, I don't think you're going to see a giant flowering of business opportunities in Russia for American companies. I don't think you're going to get much relief in Russia. And that's particularly true if the Europeans and the Brits hold the line and keep their sanctions in place, which I'm very confident they will.

I think one more lesson from the Iran sanctions I think is especially pertinent now when we're discussing the possibility of doing new sanctions on Russia in the event that Putin doesn't decide to negotiate in good faith with Zelensky. The key leverage we had with Iran was the ability in a targeted manner to unfreeze Iranian assets, to basically repatriate Iran's oil wealth to Iran.

And so I think when we got the JPOA that froze Iran's nuclear program in November of 2013, we repatriated something like $5 billion worth of Iran's own oil money. And then in exchange for the final deal, we repatriated quite a bit more of Iran's oil money. I think one of the problems we have vis-a-vis Russia right now is we actually don't have a great pool of frozen assets to use, right? We have the central bank reserves, but those are pretty much earmarked for Ukraine's reconstruction.

I think that probably if I were advising American European leaders right now in terms of next steps on sanctions, I think the key thing is finding a way to start freezing some of those flows of Russian revenues for their oil sales, for their gas sales in foreign bank accounts that then we can use

in a potential negotiation. Because right now, I worry that if you were to tell me to craft a good sanctions relief proposal in exchange for a lasting peace agreement in Ukraine, I wouldn't really have a good solution because those frozen sovereign assets are earmarked for Ukraine's reconstruction. Eddie, thanks so much for being here with us. Unfortunately, we're going to have to end this conversation there. It has been great, as always. Everyone who's listened to this conversation should definitely go out and buy this book.

choke points, American power in the age of economic warfare. We've covered a lot of the bases, but there's a lot that we haven't talked about. In particular, the economic warfare between the US and China, which is another big aspect of this. And there's some great anecdotes and stories throughout the book. So Eddie, congrats on what is a fantastic effort.

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