Economic Sanctions

Economic sanctions are penalties that one country, or a group of countries, puts on another country to force it to change its behaviour. Instead of using weapons, they use money and trade as pressure. For example, they may stop buying a country's oil, freeze its money held abroad or block its banks from the world financial system. Sanctions are often called a tool that sits between words (diplomacy) and war (military force).

Why do sanctions exist?

Countries want a way to punish or pressure another country without going to war. Sanctions are used against countries that build weapons of mass destruction, support terrorism, attack their neighbours or abuse human rights. The idea is simple: if a country's economy suffers enough, its government may agree to change its policy. Think of it like a housing society refusing to deal with a member who keeps breaking the rules, until that member agrees to follow them.

Who can impose sanctions?

There are two main types by source:

• UN sanctions: The UN Security Council can impose them under Article 41 of the UN Charter (Chapter VII). Article 41 allows "measures not involving the use of armed force", such as cutting trade, transport and communication links, or breaking diplomatic relations. These are binding on all 193 UN member countries. Each set of sanctions is usually watched by a sanctions committee. For example, the 1267 Committee lists terrorists linked to Al-Qaida and ISIL.
• Unilateral sanctions: Imposed by one country or a group (like the United States or the European Union) on their own. They are binding only under that country's own laws. The US is the biggest user of such sanctions.

How US sanctions work

In the US, the President can declare a national emergency about a foreign threat under the International Emergency Economic Powers Act (IEEPA), 1977, and then block transactions and freeze assets. Congress also passes country-specific laws, such as the Iran Sanctions Act of 1996 (first called the Iran and Libya Sanctions Act) and CAATSA, 2017 (Countering America's Adversaries Through Sanctions Act).

The Office of Foreign Assets Control (OFAC), part of the US Treasury Department, runs and enforces these sanctions. It keeps the "SDN list" (Specially Designated Nationals): people and companies that Americans cannot deal with.

Primary vs secondary sanctions: the key difference

• Primary sanctions stop a country's own people and companies from dealing with the target. Example: a US company cannot buy Iranian oil.
• Secondary sanctions go further. They punish third-country companies and people, who are not American, for dealing with the target. The message is: "If you trade with Iran, you cannot trade with the US, or use US banks or the US dollar."

Because so much of world trade and banking runs through the US dollar and US banks, secondary sanctions are very powerful. Most big companies anywhere in the world will choose the US market over the sanctioned country. This is why sanctions imposed by the US alone can still cut a country off from most of the world.

Common types of sanctions tools

• Trade embargo: A ban on buying from or selling to the country, fully or for certain goods (like oil or arms).
• Asset freeze: The target's money and property held abroad is locked and cannot be used. The "frozen Iranian assets" in the news are an example.
• Financial sanctions: Blocking the target's banks from the global system. Iran's banks were cut off from SWIFT (the global bank messaging network) in 2012 and again in 2018.
• Travel bans: Named officials cannot travel to the sanctioning country.
• Targeted or "smart" sanctions: Aimed at specific leaders, companies or sectors, to hurt decision-makers while sparing ordinary people.

What is a waiver?

A waiver is a formal exception that allows some deals to continue despite sanctions. It works like a temporary permission slip. Examples linked to India:

• In November 2018, the US gave "Significant Reduction Exceptions" to eight buyers of Iranian oil, including India. They expired on 2 May 2019, and India stopped buying Iranian oil.
• In 2018, the US also gave a waiver for India's work at Chabahar port under the Iran Freedom and Counter-Proliferation Act (IFCA). The US revoked (cancelled) it with effect from 29 September 2025.
• In March 2026, during the Hormuz crisis, the US Treasury gave India a 30-day waiver to buy Iranian oil. It expired on 19 April 2026.

India's position

India's stated policy is that it follows sanctions imposed by the United Nations, but it does not formally accept unilateral sanctions by any single country. In practice, India has had to adjust to US secondary sanctions, because its banks, oil companies and exporters deal heavily with the US. India has used special payment channels in the past to keep some trade going, such as rupee-based payments for Iranian oil.

India also faces possible CAATSA sanctions over its 2018 deal to buy the S-400 air defence system from Russia; Turkey was sanctioned under CAATSA in December 2020 for buying the same system.

Commonly confused concepts

• UN sanctions vs unilateral sanctions: UN sanctions bind all UN members. Unilateral sanctions legally bind only the country that imposes them, though secondary sanctions give them global reach.
• Primary vs secondary sanctions: Primary targets the sanctioning country's own people. Secondary targets foreigners who deal with the sanctioned country.
• Sanctions vs blockade: Sanctions are legal and financial rules. A blockade is a military action, where warships physically stop ships from entering or leaving ports. A blockade is generally treated as an act of war under international law.
• Embargo vs asset freeze: An embargo stops trade. An asset freeze locks money and property that already exists abroad.

Issues, criticism and the way forward

• Harm to ordinary people: Broad sanctions can cause shortages of medicines and food, and job losses, hurting common citizens more than leaders. Humanitarian exemptions exist but often work poorly because banks fear penalties.
• Mixed results: Sanctions sometimes bring a country to the table (Iran agreed to the 2015 nuclear deal after years of sanctions). But often the target government survives and becomes more hardline.
• Hurting friends: Secondary sanctions can damage the interests of partner countries like India (lost cheap oil, delays at Chabahar).
• Pushing alternatives: Heavy use of the US dollar as a weapon has encouraged countries to trade in their own currencies and build new payment systems.
• Way forward: Experts suggest more targeted sanctions, clear and working humanitarian channels, and a clear path for lifting sanctions when the target changes its behaviour, so that sanctions become a tool for negotiation and not only punishment.

Concepts to Know

• Unilateral: Done by one country alone, without the agreement of others or the UN.
• SWIFT: A Belgium-based network that banks around the world use to send secure payment messages to each other. Being cut off from it makes international payments very hard.
• Chapter VII of the UN Charter: The part of the UN Charter that lets the Security Council act against threats to peace, with non-military measures (Article 41) or military force (Article 42).
• Waiver: An official permission to do something that a rule would otherwise forbid.