What Are Economic Sanctions?

Economic sanctions are restrictions on banking, travel, and trade that one party imposes on another to impact behavior. They can be used by one national government to punish another, often to deter military activity or discourage human rights violations. They are also sometimes implemented to encourage regime changes or enforce financial agreements such as loan repayments. 

Economic sanctions are usually intended to put pressure on a government or individuals to influence their actions. But they can also cause hardship for ordinary citizens on both sides of the restrictions. There are many controversies about economic sanctions, including whether or not they are effective. 

Definition and Example of Economic Sanctions

Economic sanctions are restrictions one entity imposes on another to impact behavior. Sanctions can include trade embargos, limited access to funds, and travel bans. National governments often use economic sanctions as a form of punishment against foreign actors. These are restrictions on banking and trade that can cause economic hardship and make military mobilization difficult.

On Feb. 24, 2022, the United States government and its allies in the North Atlantic Treaty Organization (NATO) announced a series of sanctions against the Russian government, as well as some financial institutions and individuals, after Russia’s invasion of Ukraine. The restrictions began with limits on international banking, and they expanded over time as Russia’s military activity in Ukraine intensified. The aim was to punish Russia and severely harm its ability to fund the war. 

How Economic Sanctions Work

Economic sanctions are designed to hurt a nation’s politicians and elites so that they will reconsider their activities. For example, a limit on technology imports makes it harder for people in a target country to communicate. A limit on investment makes it harder for businesses to get funding. Restrictions on money transfers reduce the size of the economy. These economic pressures often make it harder for countries to function and for residents to receive goods and services—making it difficult to raise an army or continue with day-to-day life. 

In the United States, sanctions are administered by the Treasury Department’s Office of Foreign Assets Control, in conjunction with the State Department and the Department of Commerce.

Research shows that economic sanctions often work, but not always. The United States has had an embargo against Cuba since 1962, but that has not led to regime change. While the United States’ unilateral embargo can make it more difficult for Cuba to trade with other countries, it does not prohibit them from doing so. One key to effective sanctions is having several nations involved; if only one country issues sanctions, then it is easy for the target nation to get around them. In contrast to the unilateral Cuba embargo, international sanctions against Iran seem to have prevented the country from expanding its nuclear program. 

Because national economies are tightly connected, economic sanctions can also affect people who live in the countries imposing the sanctions or in unrelated third nations. In the early days of the economic sanctions imposed against Russia, the International Monetary Fund reported that price shocks and supply chain disruptions were causing hardship for people all around the world, not just in Russia.

Types of Economic Sanctions

Economic sanctions include trade restrictions (including arms embargoes and foreign aid reductions), travel bans, and restrictions on financial transactions including asset freezes and capital restraints. These affect the target countries in different ways.

Trade Sanctions

Trade sanctions include restrictions on both imports and exports. The purpose is to limit the access to goods imported in the target nation, and to limit the potential markets for goods coming from it. Often, trade in military equipment and nuclear materials is specifically targetted by a type of sanction known as an arms embargo. 

Travel Restrictions

If travel sanctions are imposed, then citizens of the target nation may not get visas to travel to the countries imposing sanctions. This can lead to disruptions in air travel and the service sector of the economy, while also enforcing isolation. Travel restrictions can be imposed on specific individuals or entire populations and can effect travel both to and from the target country.

Sanctions on Financial Transactions

As money moves globally, restrictions on bank transfers and other cross-border financial services are a strong form of economic sanctions. At an extreme, residents of the target country may find that they cannot use credit cards on the Visa and MasterCard networks, exchange their cash for currency in another country, or have access to their bank accounts.

Criticism of Economic Sanctions

One of the main criticisms of economic sanctions is that they hurt ordinary people who have nothing to do with the political and diplomatic situation. Restrictions on foreign aid, food, and medicine can infringe upon human rights, opponents to sanctions argue. In recent years, countries including the U.S. have attempted to impose “smart sanctions” that are targeted to have maximum impact on behavior while minimizing exposure to common citizens.

Critics also point out that the country imposing sanctions also often suffer under sanctions. Blocking imports and exports from a country being sanctioned can impact the supply chain, as well as the price and availability of goods in the nation originating the sanctions. 

Another potential negative impact of economic sanctions can be the creation of trade relations among countries united against the imposing government. When travel and trade are banned by the imposing country, nations that disagree with the imposing country’s policy may step in to fill the gap for the sanctioned entity.