Types of Economic Sanctions

Types of Economic Sanctions

Economic sanctions are penalties levied by a country or a supranational organization against another country, its leaders or officials, specific organizations, or selected private individuals. The collective purpose of these penalties is to influence the direction of target parties such as state or non-state actors or change their conduct or behavior in accordance with established norms or the desired outcome of the sanctioning party.

The purported advantages of these actions or measures have made them a tool of choice for promoting domestic interest, maintaining national security, building authority in the international community, and responding to challenges and issues transpiring within the realms of international relations and geopolitics. Nevertheless, there are different forms or types of economic sanctions. Each has a more specific rationale and purpose.

What Are The Different Types Of Economic Sanctions? What Are The Examples?

1. Trade Embargoes

Restriction on trade through embargoes is one of the most commonly used types of economic sanctions. These center on a broad ban on exports or imports to or from a target country. The primary purpose is to inflict damages to the economy of the target by isolating it from the global market or form participation in economic globalization.

There are different types of embargoes. Each has more specific purposes and intended outcomes. Take note of the following:

• Export Controls: This involves a sanctioning country or multinational party preventing businesses under its jurisdiction to export goods and services to the target party. The goal is to tank the economy or negatively affect the activities of targeted organizations and individuals by disrupting their access to essential products.

• Import Controls: On the other hand, a sanctioning country can also restrict imports from a target country simply by refusing to accept its products or looking for alternative producers. The goal revolves around reducing import-related revenues, crippling import-oriented businesses, and increasing trade deficits.

• Military Embargo: This is similar to exports control but focuses on banning arms trade to a target party. An economic sanction focusing on an arms trade ban intends to weaken the military capabilities of the targeted country or organization. This has been utilized in civil wars or armed confrontations between two or more states.

One of the notable examples of economic sanctions that are based on embargoes is the ongoing trade restrictions on North Korea that were imposed by the United States, the European Union, and the United Nations Security Council. These countries and supranational organizations have banned the exportation of military equipment, goods, and luxury items to the country.

A more recent example is the Russia-Ukraine War that began in February 2014 and escalated further in February 2022 when the Russian Armed Forces crossed the Ukrainian border. The invasion prompted the U.S. and other European countries to ban or reduce their consumption of oil and gas imports from the Russian oil and gas industry.

Note that not all embargoes are economic sanctions. The Organization of the Petroleum Exporting Countries has been using oil embargoes to influence global political affairs and control the prices of oil in the global market. So-called environmental embargoes are intended to conserve wildlife and prevent the trading of endangered species.

2. Capital Controls

Another type of economic sanction is capital controls. This involves restricting target countries, organizations, and companies from accessing investments or international capital markets. The purpose is to render these targets unable to raise funds or capital needed to stimulate their economies or continue and expand their business activities.

Specific examples and means of capital controls include raising of taxes to increase the cost of investing or borrowing money, volume restrictions, legislation that prevents domestic financial institutions from doing business with the targets, the use of market-based forces, and even traffic on tangible inputs such as oil and other commodities.

The monetary policy of a particular government through its central bank or monetary authority can impose some forms of capital controls. These include increasing the interest rates to influence the interest rates of commercial and investment banks. Controls through taxation, tariffs, and legislation can be part of the fiscal policy of a country.

Of course, while controls on access to capital are not automatically considered as a form of an economic sanction, countries can use them to limit the economic progress of a targeted country, the health and sustainability of its specific industries and sectors, or the business interest of targeted organizations and individuals residing in the country.

3. Asset Freezing

Governments can also resort to freezing the assets of their targets. This is only feasible if the assets are located outside the countries of these targets. The purpose is somewhat similar to capital controls but the main objective is to prevent the targets from using these assets to fund their activities or moving their assets to safer and more favorable locations.

During the invasion of Ukraine by Russia, Western countries have moved to freeze the offshore assets of Vladimir Putin and selected Russian oligarchs. However, the goal was not to prevent them from using these assets to fund the military operations of Russia but to exert pressure on Putin to withdraw his troops and stop the invasion from advancing further.

Asset freezing can also be part of a counterterrorism measure. The sanctioning country will freeze the assets of a government or entity alleged to fund terrorist organizations. For example, in 2021, Qatar and the U.S. froze the assets of individuals believed to provide financial support to Hezbollah and for violating the Gulf Cooperating Council standard.

4, Financial Sanctions

Both capital controls and asset freezing are specific subtypes of financial sanctions. However, there are other measures that fall within this general type of economic sanctions. Another one of the most commonly used financial sanctions is a restriction in international asset transfer. The goal is to prevent the target from receiving money and crippling its financial health.

The SWIFT standard for interbank financial telecommunication is one of the most widely utilized and adopted systems for international interbank wire transfers. The entire SWIFT messaging network is also part of the greater global payment system used by over 11000 financial institutions in more than 200 countries and territories.

It has also been used as a specific tool for financial sanctions. The nuclear program of Iran prompted the U.S. to expel Iranian banks from using the SWIFT network. Western countries also moved the exclude selected banks operating or originating in Russia from the network following the escalation of its armed conflict with Ukraine.

Similar to SWIFT bans, preventing a target from entering into financial transactions using a financial intermediary such as banks or other financial institutions, as well as providing relevant financial services are also subtypes of financial sanctions. The purpose is to limit access to funds or disrupt the flow of money to the target.

Asset seizure or forfeiture is also another subtype. Note that this is an extreme measure. But the U.N. Convention Against Corruption has recommended this as a measure to fight corruption in a target country, deter government officials from stealing and hiding public funds in foreign financial markets, and penalize these corrupt officials.

5. Travel Restrictions

Sanctioning countries can also impose travel bans to and from a target country. The purpose and rationale vary. For example, banning specific officials or individuals and their immediate family members from leaving a target country by halting flights and removing flight routes is intended to prevent them from fleeing and escaping possible domestic prosecution.

A travel ban to a target economy can be rationalized either to prevent foreign volunteers from participating in an ongoing domestic sociopolitical conflict, ensure the safety of citizens from the sanctioning countries, or cripple the tourism industry of the target country. This has been observed in conflict-ridden territories or jurisdictions.

Some travel restrictions are implemented as part of precautionary measures. For example, during the COVID-19 pandemic, countries that failed to combat the outbreak of the virus would be included in the list of banned destinations. This also means that the sanctioning country intends to encourage the target country to improve its pandemic response.

The same is true for conflict-ridden jurisdictions. The utmost purpose of travel bans is to protect the citizens of the sanctioning countries from threats that might come from being in a conflict zone. Furthermore, the secondary purpose is to encourage the domestic government or local government officials to resolve the conflict as soon as possible.