CUTS Washington Monthly Brief
#17, August 2019
Extraterritorial Sanctions or Achilles' heel? An Alarming Situation for the U.S.

With massive exposure to the U.S. banking, financial and insurance sector, global non-compliance to any U.S. sanctions remains difficult. In fact, it has helped the U.S. exert its influence in enforcing ‘primary’ and ‘secondary’ sanctions under Countering America’s Adversaries through Sanctions Act (CAATSA).

Under CAATSA, ‘primary’ sanctions are imposed on countries, businesses and individuals who deem to be America’s adversaries. ‘Secondary’ sanctions, also referred to as ‘extraterritorial’ sanctions are based on the premise of extraterritorial applicability. Simply put, they are meant to discourage the rest from making any sort of direct or indirect commercial transactions with the primary targets.  

As a consequence, business engagements with Iran and buying Russian defence and intelligence products, no longer remain as ‘business as usual’.

It is a known fact that Iran and Russia enjoy a long standing economic and strategic relationship with India and the European Union, among others. In spite of this, India complied with the U.S. sanctions and reduced the procurement of Iranian oil considerably.
However, pressurising India not to buy the Russian S-400 missile defence system, in guise of secondary sanctions, sounds unwarranted. It could rather prove to be a litmus test for the Indo-U.S. relations which have grown effortlessly under Prime Minister Modi and President Trump.

Thus, instead of being resentful, it will be essential for the U.S. to respect sovereign choices of its partners (for example, Turkey, despite being a NATO ally, has taken the delivery of the Russian missiles) including that of India. The U.S. might even do so by keeping strategic transactions out of the purview of CAATSA.

Alternatively, to circumvent the risk of the secondary sanctions, countries are likely to reduce their exposure and reliance to the dollar payment system. Euro is becoming the most sought after currency for routine international transactions. Even, India could pay Russia in Euro for its deal.

Hope the U.S. is listening!

Any sort of intransigence will only stifle its credibility, otherwise.

Pradeep S. Mehta

P.S. How tactful, President Trump’s insistence on including Russia in the G-7, particularly after the INF treaty withdrawal, is?  
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