Economic Sanctions and Its Type

Economic Sanctions and Its Type

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President Biden imposed new sanctions against Russia on Thursday, focusing on the banking sector. According to a White House fact sheet, Russia's major banks' assets will be cut off from the US financial system, and some of the country's largest companies, including Gazprom, will be shut out of the US financial system.

Economic sanctions are fines imposed on a country, its authorities, or individual residents as a form of punishment or to offer disincentives for specific policies and acts. Travel bans and export restrictions, as well as trade embargos and asset seizures, are examples of economic sanctions. Such sanctions, by definition, apply to those who are not easily prosecuted by the sanctioning state. 

Economic sanctions are a policy instrument that can be used instead of military force to penalize or deter unwanted behavior. They're broadly applicable outside the borders of the sanctioning country, and they can be expensive to their targets as global trade and economic interdependence grow. Economic sanctions can also be a brutal and ineffectual policy weapon, putting insufficient penalties on targeted countries while imposing disproportionate costs on their most vulnerable citizens.

The United States and the European Union, as the world's largest economy and trade group, have disproportionate sanctions powers. 

Sanctions Can Come In A Variety Of Forms.

A single country can impose economic penalties unilaterally, or a group of countries or an international organization can impose them multilaterally. Sanctions include the following:

Travel restrictions – Travel access to sanctioning jurisdictions may be limited to officials, private residents, and direct family members.

Capital controls - Financial restrictions can limit investment in specific countries or industries, or deny a country's issuers broad access to international capital markets.

Asset freezes or seizures – Assets in sanctioning jurisdictions can be confiscated or frozen, prohibiting them from being sold or transferred.

Export controls – Export limitations prevent some items, services, and intellectual property from reaching certain nations. They frequently impose restrictions on the sale of weapons, technology having military uses, and, in Russia's case, oil drilling technologies and equipment.

Embargoes - A trade embargo is a blanket prohibition on commerce with a country, with exceptions made for humanitarian reasons such as the supply of food and medicine. The United States has long imposed trade embargoes on Cuba, Iran, and North Korea.

Final Thoughts

If the goal is punishment, the success of sanctions can be judged by the attainment of the desired policy goals, or simply by the cost to the targeted countries and individuals. They can also impose costs on citizens of the targeted countries as well as companies from the sanctioning country.

If the goal is to modify the conduct of sanctioned countries and individuals, their incentives and options will be just as important as the sanctioning powers' leverage.