Relevance: GS-2- Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests,Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.

Key Phrases: Embargoes, Export controls, Trade sanctions, Trade sanctions, Asset freezes or seizures, Organisation for Economic Co-operation and Development , North Atlantic Treaty Organization, SWIFT.

Context

• The economic sanctions imposed by the US, UK, and the EU on Russia for going to war against Ukraine could prove to be detrimental to the country. These sanctions can range from export restrictions to trade embargos and seizure of assets.

What do economic sanctions mean?

• Economic sanctions are penalties levied against a country, its officials or private citizens, either as punishment or in an effort to provide disincentives for the targeted policies and actions.
• Economic sanctions can range from travel bans and export restrictions to trade embargos and asset seizures . By definition, such sanctions apply to parties not readily subject to law enforcement by the sanctioning jurisdiction.
• Economic sanctions provide a policy tool short of military force for punishing or forestalling objectionable actions. They're widely applicable beyond the sanctioning country's borders and can be costly to their targets amid increased global trade and economic interdependence.
• Economic sanctions can also be a blunt and ineffective policy tool, imposing insufficient costs on the targeted governments and disproportionate ones on their most vulnerable populations.
• As the world's largest economy and largest trade bloc, the U.S. and the European Union have disproportionate sanctions powers at their disposal.

Sanctions Can Take Many Forms

Economic sanctions can be imposed unilaterally by a single country or multilaterally by a group of countries or an international organization. Sanctions measures include:

• Embargoes: A trade embargo is a broad ban on trading with a country, though it can sometime include exceptions for the supply of food and medicines on humanitarian grounds. Cuba, Iran and North Korea have long been subject to U.S. trade embargoes.
• Export controls: Export restrictions bar the supply of specified products, services and intellectual property to targeted countries. They often restrict sales of weapons, technology with military applications or, as currently for Russia, oil drilling technologies and equipment.
• Capital controls: Capital controls can restrict investment in targeted countries or industries, or broadly bar access to international capital markets for a country's issuers.
• Trade sanctions: Trade sanctions can include import controls for specific countries, regions or industries.
• Asset freezes or seizures: Assets within sanctioning jurisdictions can be seized or frozen, preventing their sale or withdrawal
• Travel restrictions: Officials and private citizens as well as immediate family members may be denied travel access to sanctioning jurisdictions.

How do sanctions impact an economy?

• No country can afford to be a closed economy.
• The affected country’s supply chain gets disrupted in terms of inflow of goods and services and for reaching out to the export markets.
• In the former, there is a risk of the internal economy being crippled, especially if it depends on imports of critical raw material.
• The domestic economy could also be deprived of external market support.
• The risk element is high especially in case of economic curbs being imposed collectively, such as by the Organisation for Economic Co-operation and Development (OECD) or the North Atlantic Treaty Organization (NATO).

Economic sanctions against Russia

• Major Russian banks have been banned from the SWIFT financial messaging service and their assets have been frozen. Sanctions have been levied on the Russian Direct Investment Fund and against some of Russia’s wealthiest people.
• Access to air-space has been denied and export controls introduced. The countries imposing curbs on Russia account for 34% of world GDP.
• Russia cannot be brushed aside as an ordinary economy.
• The country is important to the global economy because of its oil reserves and access to nuclear power.
• Russia is also a supplier of sophisticated defence products and is an important supplier of crucial defence products to India. Given the long-term strategic nature of the relationship, India is abstaining from voting on resolutions to condemn Russia.

The Bottom Line

• It is a truism that in the three decades following the end of the Cold War, the world has become closer, more networked and more inter-dependent – a process that’s come to be known as globalization. But now, are these sanctions about to turn the clock back
• The success of sanctions can be measured by the achievement of the desired policy goals, or simply by their cost to the targeted countries and individuals, if punishment is the aim.
• They can also impose costs on the targeted country's citizens as well as the sanctioning country's companies.
• If the goal is to change the behavior of targeted countries and individuals, their incentives and options will ultimately matter at least as much as the sanctioning powers' leverage.

Sources: Live-Mint

Mains Question:

Q. What do you mean by economic sanctions? Criticaly examine the impacts of US sanctions on Russia ?(word 250).