Sanctions - Meaning & Impact

This week’s post has been tough to write given the tragedies going on in the world, which includes but is not limited to wars in: Ukraine, Syria, Israel-Palestine, Yemen, Afghanistan, Myanmar, multiple conflicts in Africa.?

The word “sanction” is being thrown around a lot these days so I’m going to try and break down how they work by looking at the recent sanctions against Russia.

What is a sanction??It can consist of Asset Freezes or Seizures, Restrictions on Financial Markets & Service, Travel Bans, and Import/Export controls, levied by one country against another or a consortium of countries (such as United Nations) against another.

How can this help prevent a larger armed conflict??The hope is that the sanctions can cause enough economic pain to bring the offending parties to the negotiation table or have them change course completely.?According to Rawi Abdelal, Professor at HBS, “sanctions are useful when diplomacy is not sufficient but force is too costly.”

Let’s look at a few sanctions levied against Russia so far:

1. Asset Freezes: The assets of Russia’s wealthiest individuals that reside in banks outside of Russia are completely frozen.?Even though the money belongs to them they have no access to it via electronic or physical means.?They may have stockpiles of cash they can live off of for now, but eventually they’ll want access to that money.?The Russian government’s assets in foreign countries are also frozen, including a reported $600+ Billion in foreign reserves most of which is in banks outside of Russia.?This means Russia can’t access central bank funds to help prop up the economy as a means of combatting the sanctions.?Two of the largest banks in Russia also have their assets frozen.
2. Restricted Exports: The US, Taiwan, and others have most notably restricted exports of high-tech products like computers and semiconductors to Russia. Imagine not being able to buy a new computer? Or the Russian military not being able to get the latest technology?
3. Financial Transactions: Cutting Russia off from “SWIFT”. SWIFT is a sophisticated electronic messaging system that is used for trillions of dollars’ worth of transactions around the world. By cutting Russian banks off from using SWIFT they will have to revert back to email and fax. This dramatically slows down their ability to combat sanctions.

It’s likely these sanctions will have only a minimal effect for now. Unfortunately, it’s the Russian people who will feel the pain the most.?The breadth and depth of sanctions against Russia have not been seen before, and so they may be more impactful, but history tells us many countries find a way to live even with sanctions.?Below is a snapshot of current countries who are currently sanctioned by the US:

• North Korea – Sanctions Introduced 1950
• Cuba – Sanctions Introduced 1958
• Iran – Sanctions Introduced 1979 (lifted 1981), reintroduced 1987
• Syria - Sanctions Introduced 1986
• Venezuela - Sanctions Introduced 2019

I hope this was helpful to some and informative to most. Sending positive thoughts to all those caught up in conflicts around the globe.

Amer Alnajafi