Economic sanctions are powerful tools that can disrupt global supply chains, reshape industries and lead to financial turmoil. For businesses, the impact can be especially severe when a single sanctioned supplier’s failure to deliver can cause cascading disruptions and cost spikes. Moreover, companies can face reputational risks from having ties to sanctioned regions. This can make the risk of implementing or expanding sanctions a key consideration for companies operating in globally interconnected markets.
One of the main motives for countries to impose sanctions is moral protest against foreign policies that violate basic democratic values. These include oppressive regimes that treat their populations inhumanely and whose political systems are at odds with democracy.
Embargoes impose broad restrictions on trade, including import restrictions and export controls (such as on weapons or technology with military applications). Assets within the control of sanctioning governments can be frozen and the travel of officials, private citizens, and their immediate family members is restricted.
The impact of sanctions is hard to gauge accurately. This is due to a lack of statistical methods that can discern the causal effect. Further, anecdotal eyewitness accounts are often biased.
Nevertheless, empirical estimates can be used to inform policymakers about the potential effects of sanctions. Our results suggest that comprehensive sanctions, such as embargoes, have the most severe negative externalities. Specifically, they hurt people who are not directly responsible for the sanctions’s enforcement and can exacerbate social unrest. By contrast, targeted “smart” sanctions can be a more effective way to pressure authoritarian decision-makers and encourage their overthrow.