What is an 'Embargo'

An embargo is a government order that restricts commerce or exchange with a specified country or the exchange of specific goods. An embargo is usually created as a result of unfavorable political or economic circumstances between nations.

The restriction looks to isolate the country and create difficulties for its governing body, forcing it to act on the underlying issue.

BREAKING DOWN 'Embargo'

A strategic embargo prevents the exchange of any military goods with a country. A trade embargo restricts anyone from exporting to the target nation. Because many nations rely on global trade, an embargo is a powerful tool for influencing a nation. (For more, see How Embargoes Affect International Business.)

A trade embargo can have serious negative consequences for the economy in the affected nation. The United State's decisions about trade embargoes and other economic sanctions are often based on mandates by the United Nations. Allied countries frequently band together to make joint agreements to restrict trade with specific nations to force humanitarian changes or reduce perceived threats to international peace.

American Trade Embargoes

The United States has imposed several long-running embargoes on other countries, including Cuba, North Korea and Iran. In the 1980s, several countries, including the United States, imposed trade embargoes against South Africa in opposition to apartheid.

American embargoes and economic sanctions against some countries specifically exclude certain types of goods, such as arms or luxury goods, while allowing other forms of trade. In contrast, comprehensive embargoes are more punitive because they prohibit all trade with the country. In the wake of the Sept. 11, 2001, attacks, American embargoes have been increasingly directed against countries such as Sudan with known ties to terrorist organizations that pose a threat to national security.

In turn, the United States has been the target of embargoes. In the 1970s, for example, the American economy suffered due to an oil embargo. Imposed by member nations of the Organization of the Petroleum Exporting Countries (OPEC), the embargo caused fuel shortages, rationing and soaring gas prices.

Authority for Embargoes

The president of the United States possesses 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, gives the president power to enact commerce restrictions during periods of national emergency. In the United States, the Office of Foreign Assets Control administers economic trade embargoes. A division of the Department of the Treasury, the office plays a central role in tracking down and freezing sources of funding for terrorist and drug-related organizations.

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