From Cuba’s decades-long embargo to the recent sanctions against Iran, North Korea, and Russia, economic restrictions have severed global supply chains and reshaped industry. While businesses seek to mitigate financial losses and find new markets, they also face reputational risks that can erode consumer confidence, limit investor engagement, and complicate partnerships. Getting ahead of these trends and understanding the broader implications is critical for any company doing business internationally.
Sanctions are a tool for raising the cost of a country’s undesirable policy and coercing it into changing course. They can take many forms, including international condemnation, nonrecognition of forcible territorial changes, boycotts, and recalling or expelling ambassadors. In the best of cases, these diplomatic pressures are part of a comprehensive strategy to alter the cost-benefit analysis of an adversary and move toward a mutually acceptable political outcome.
Often, though, they are not used in this way, and their effectiveness is limited. In democracies, a sanctioned government’s economic prospects decline, which can lead to a loss of power. In autocracies, where governments do not depend on public support for their power, the impact can be less pronounced.
Either way, the costs of sanctions are steep for businesses that must reroute orders, invest in compliance infrastructure, and seek alternative suppliers. They also impact consumers, raising prices and limiting their choices of goods and services. And because sanctions restrict access to cutting-edge technologies, they can stifle innovation and slow the pace of technological progress around the world.
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