Embargo: Definition in Economics, Examples, and Effects

Embargo Definition in Economics

An embargo is a trade restriction, typically adopted by a government, a group of countries, or an international organization as an economic sanction. Embargoes can bar all trade, or may apply only to some of it—for example, to arms imports. They are designed to punish the targeted country for its actions, and to deny it the means to carry out objectionable policies.

How an Embargo Works

Countries use embargoes to punish and deter objectionable behavior without resorting to military force, often in response to human rights violations and armed conflict. A widely observed embargo can be a powerful tool, isolating the targeted country and denying it the benefits of international trade.

Countries dependent on global trade or technology imports are especially vulnerable to embargoes. In contrast, determined authoritarian regimes have successfully resisted embargoes for decades, often at immense cost to living standards.

U.S. Trade Embargoes

The U.S. has imposed long-running and comprehensive trade embargoes on Cuba, North Korea, Iran, and Syria, countries whose policies it finds particularly objectionable. Those embargoes are backed by a variety of legislative acts and presidential orders.

The U.S. president has the authority to impose embargoes and other sanctions during times of war under the Trading with the Enemy Act.

Another act, the International Emergency Economic Powers Act, authorizes the president to enact commerce restrictions during strictly defined periods of national emergency.

In the United States, the Office of Foreign Assets Control, a division of the Department of the Treasury, administers embargoes. The office also plays a central role in tracking down and freezing sources of funding for terrorist and drug-trafficking organizations.

Effect of Embargoes

Embargoes rarely result in a change in policy, much less in the targeted country’s government. For example, the U.S. embargo on Cuba, in effect since 1962, has failed to oust the country’s governing communist party or to persuade it to tolerate dissent.

Similarly, the embargo on oil exports to the U.S. imposed by Arab members of the Organization of the Petroleum Exporting Countries (OPEC) during the 1973 Arab-Israeli War failed to end U.S. support for Israel.

Embargoes can be successful in their goal of punishing the targeted country, however. For example, the 1973–1974 Arab oil embargo caused fuel shortages, rationing, and soaring gas prices, increasing the cost of America’s foreign policy.

In the 1980s, limited trade restrictions imposed on South Africa along with investment and other economic sanctions by several countries, including the U.S., hastened the end of apartheid.

Limited trade sanctions imposed on Russia following its invasion and occupation of parts of Ukraine in 2014 failed to deter renewed Russian aggression in 2022. The broader U.S. and allied sanctions imposed since February 2022 have reportedly deprived the Russian military of semiconductors vital for military electronics as well as parts needed to manufacture tanks.

The boycott, divestment and sanctions movement, which uses the South Africa model to promote sanctions punishing Israel for occupying Palestinian territory, has prompted fierce opposition from Israel and its allies in an indication of the high costs such sanctions could impose.

Criticism of Embargoes

In addition to their limited likelihood of prompting a policy change by the targeted country, embargoes have been criticized for hurting subject populations with no role in setting or carrying out the objectionable policies.

Notably, the international economic embargo imposed on Iraq following its 1990 invasion of Kuwait drew criticism for hurting the poorest and sickest Iraqis the most. Similar arguments have been made in opposition to the U.S. embargo on Iran over violations of the Nuclear Non-Proliferation Treaty.