How do sanctions work?

Stephanie LuzonMärz 15
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Over the last weeks, due to the Russian-Ukrainian conflict, we have been inundated with news about sanctions. Every day, sanctions are either being enacted, or threatened, or talked about, But what exactly are economic sanctions, and how do they work?

What are economic sanctions?

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Economic sanctions are a set of measures that aim to restrict or block economic and trade relations with a country found guilty of violating international law. They are foreign policy instruments and are usually imposed by more than one country. Basically, countries come together and say, "we are not going to do business with you." They're considered a soft measure compared to armed intervention.

Sanctions can be on countries or individual people. Often, they're a combination of both. There are also cases where only two countries are involved: the sanctioning country and the sanctioned country.

What exactly gets blocked can range from embargoes to the expropriation of goods and services. 

Sometimes economic sanctions are ineffective, especially in cases where what's imposed on targeted governments proves to be insufficient and when the local population is the most affected. Another problem is that the effects of sanctions rarely remain confined to the sanctioned country. It's relatively common to see the impacts on all countries imposing sanctions and having trade relations with the target country. That's why sanctions' effects are so unpredictable.

Sanctions have many forms

There are different kinds of sanctions. The most common ones include:

  • Embargoes: a trade embargo is a ban on any trade between two countries. Exceptions are sometimes allowed for trading food and medicines. The U.S. embargo of Cuba - initiated 60 years ago by President Kennedy to protect the U.S. from communism - is perhaps the most famous example. 
  • Capital controls: these sanctions aim to limit investment in specific industries or countries and broadly bar access to international capital markets for a country's issuers.
  • Trade sanctions: these involve countries stopping the trade of a specific product, or industry. For example, the U.S. ban on importing Russian oil. The strongest forms of these are embargoes.
  • Asset freezes or seizures: The assets from the target country located inside the jurisdictions of the countries that are imposing the sanctions can be seized or frozen, preventing their sale or withdrawal. For example, a bank account of a sanctioned individual might be frozen.
  • Travel restrictions: politically exposed people and private citizens may be denied entry to the countries that are imposing the sanctions.
  • Exports control: these restrictions aim to block the supply of specific products, services and intellectual property to targeted countries. They often limit sales of weapons, technology with military applications or, as currently for Russia, oil drilling technologies and equipment.

Do sanctions actually work?

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It depends. Success often depends on how many nations decide to participate in the sanctions. When sanctions are applied by more than one country, usually the sanctioned country suffers more, and there's a higher degree of success. Unfortunately, in many cases, sanctions cause a lot of damage on the economic level but don't actually lead to a real change on the political level. 

On the other hand, if the sanctions' objective is to inflict punishment, it's essential to understand if the citizens and companies within the sanctioned country might end up bearing most of the costs.

The last scenario is when the goal is to change the behaviour of sanctioned countries and individuals. In that case, their available tools and incentives will be as crucial as the leverage of the sanctioning powers.

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