Economic sanctions are financial and trade-related penalties imposed by one entity (a country, company, or individual) on another to exert economic, political, and diplomatic pressure. They are designed to change a targeted entity’s behavior by changing its cost-benefit analysis.
To be effective, sanctions need to make compliance more expensive than non-compliance. To do so, they typically rely on one or more of the following mechanisms:
Asset Freezes and Seizures: By preventing sanctioned entities from owning, selling, or transferring assets, these measures aim to raise the cost of their policies and coerce them into accepting more desirable ones. They can be applied to specific individuals or companies as well as to entire countries.
Export Bans: By preventing the export of goods or services, these measures seek to deprive sanctioned entities of their primary revenue source and create disincentives for the behavior they are targeting. They can also be used to prevent foreign governments from acquiring technology from sanctioned companies, as in the case of the US CoCom embargo on Soviet Union tech exports.
Unlike other policy instruments, such as military strikes and drone attacks, the effectiveness of sanctions is often highly dependent on the cooperation of the sanctioned party. This is because the more nations that agree to and enforce a set of sanctions, the greater their impact. Moreover, a set of sanctions can be more powerful when they are designed to target the ruling regime in a country. However, the effectiveness of a regime-targeting sanction strategy is particularly challenging to design.