What is a 'Capital Blockade'

A capital blockade is an economic sanction that limits or prevents investment capital from flowing offshore from a country to be used for possibly questionable purposes.

Breaking Down 'Capital Blockade'

A capital blockade may be imposed by a country or group of countries to hamper economic growth of the sanctioned country to pressure it to resolve differences by negotiations. Such sanctions may be an effective and relatively peaceful way to return to the bargaining table without escalation to armed conflict. A capital blockade may be combined with freezing foreign bank accounts that belong to the target country's citizens to add pressure.

Economic sanctions are the withdrawal of customary trade and financial relations for foreign and security policy purposes. They may be comprehensive, prohibiting commercial activity with an entire country, or they may be targeted, blocking the transactions of and with specific businesses, groups, or individuals. Since 9/11, there has been a shift toward targeted sanctions, which aim to minimize the effects on civilians. Sanctions take many forms, including travel bans, asset freezes, arms embargoes, capital restraints, foreign aid reductions, and trade restrictions.

Economic Sanctions Explained

National governments and international governing bodies such as the United Nations and European Union have imposed economic sanctions to coerce, deter, punish, or shame entities that endanger their interests or violate international norms. They have been used to advance foreign policy goals including counterterrorism, counternarcotics, nonproliferation, democracy and human rights promotion, conflict resolution and cybersecurity.

Sanctions generally are viewed as a lower-cost, lower-risk, middle course of action between diplomacy and war. Policymakers may consider sanctions as a response to foreign crises where the national interest is minor or where military action is not feasible. Leaders may issue sanctions while they evaluate more serious action.

Usually, economic sanctions prohibit only a home country’s or region’s corporations and citizens from doing business with a blacklisted entity. Extraterritorial sanctions, also called secondary sanctions or a secondary boycott, are designed to restrict the economic activity of governments, businesses, and nationals of third countries. Many governments consider these sanctions a violation of their sovereignty and international law.

Sanction results vary by case. Sanctions with relatively limited objectives are more likely to succeed than those with major political ambitions. Sanctions may evolve. For example, except for a brief period in the 1980s, Washington has had sanctions on Tehran since U.S. hostages were taken in 1979. But the scope and logic of the sanctions has changed. The utility of sanctions is more important than whether they achieve their objectives. In some cases, sanctions may just be intended to express censure.

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