An embargo happens when a country restricts the trading of certain products, goods, or services with a specific country. Embargos can also be imposed on a group of countries. This can result in a commerce interruption and is usually caused by political or economic conflict with the country in question. Examples of conflicts can include human rights violations, financial disagreements, or environmental challenges.
Trade embargos may seem like an issue that only affects governments, but they can have a trickle down effect on businesses, individuals, and investors too. There are different types of embargos which include ones on arms, financial transactions, and investments.
How Embargos Work
A country, government or international organization can implement an embargo to restrict trade on their valuables. Examples can include goods, services, or currency. Embargos may also be placed on specific categories of goods so that the embargo doesn’t affect the entire economy. The primary goal of an embargo is to pressure the other country to change policies that may not be favorable to the country imposing the embargo. They’re usually a response to foreign policies or actions that pose a threat to national security.
In terms of the effects of embargos, they can have negative impacts on people of a country or on economies. This may especially be true when the goods or services being restricted are core needs for people in a country. For instance, if an embargo is put on oil, that can affect a multitude of things like gas price or cause disruptions in the transportation system. Likewise, businesses that trade embargoed items may experience a disruption in operations.
In an instance where the government that imposes the sanction holds more power, it may affect the sanctioned country more. That said, sanctions don’t always lead to changes in behavior or policy.
Sanctions vs. Embargos
Sanctions and embargos are often used interchangeably but there are some differences between the two. Embargos tend to be broader restrictions on a country, whereas sanctions are more specific. For instance, sanctions may say arms can’t be sold to a specific business or country. On the other hand, an embargo could put a halt to all trade activities between countries. Sanctions can also be unilateral or multilateral. The former is when a single country imposes the sanction, while the latter is when multiple countries impose it.
Examples of Embargos
The U.S. has placed several embargos on other countries over the years. Some include Cuba, North Korea, Iran, Sudan and Syria. Starting with Cuba, in 1962 the U.S. placed an embargo on the country, restricting all trade. In 1979 the U.S. placed a sanction on Iran after they seized the U.S. Embassy in Tehran and held American diplomats hostage for 444 days.
The Office of Foreign Assets Control has the power to administer embargos in the United States.
Investors can be impacted by embargos, especially when they’re financial. If one country places an embargo on another, limiting access to financial transactions and activities, it can negatively impact the market and reduce trade.
