Embargo

What Is an Embargo?

An embargo is a government order that restricts commerce 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. It is designed to isolate a country and create difficulties for its governing body, forcing it to act on the issue that led to the embargo.

Key Takeaways

  • Embargoes restrict trading or the exchange of certain goods with a particular country—usually the result of political or economic issues among nations.
  • Embargoes are meant to inflict negative consequences on the affected nation's economy.
  • Trade embargoes imposed by the United States are often based on United Nations mandates.

How an Embargo Works

An embargo is a powerful tool that can influence a nation, both economically and politically. The ability to easily trade goods all over the world is key to maximizing the economic prosperity of a country. When that is no longer possible, it can have serious negative consequences.

The decisions on trade embargoes and other economic sanctions made by the United States are often based on mandates by the United Nations (UN), an international organization formed in 1945 to increase political and economic cooperation. Allied countries frequently band together, making joint agreements to restrict trade with specific nations. This is often done to force humanitarian changes or reduce perceived threats to international peace.

Embargoes do not necessarily apply to all goods moving in and out of a country’s borders. Sometimes only certain items are embargoed, such as military equipment or oil. 

Types of Embargoes

There are several different types of embargoes. A trade embargo refers to banning exports or imports to or from one or more countries. These can then be narrowed down more specifically. For example, strategic embargoes protect animals, people, and plants.

Specifically, a military embargo prevents the exchange of military goods with a country, while an oil embargo prohibits only the trade of oil, and an embargo on endangered animals would prevent the trade of such animals. Embargoes may be political, economic, security-related, environmental, or health-related.

The term embargo is also used in the media industry. When information is released with an embargo, it means that it cannot be published or shared before a certain specified date. Companies often embargo press releases.

Enacting an Embargo

The president of the U.S. possesses 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, gives the president power to enact commerce restrictions during periods of national emergency.

In the U.S., the Office of Foreign Assets Control, a division of the Department of the Treasury, administers economic trade embargoes. The office plays a central role in tracking down and freezing sources of funding for terrorist and drug-related organizations.

U.S. Trade Embargoes

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

American embargoes and economic sanctions against some countries specifically prohibit trade in 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, terrorist attacks, U.S. embargoes were increasingly directed against countries with known ties to terrorist organizations that pose a threat to national security. Lately, U.S. embargoes have become more widespread, paving the way for a series of trade wars.

When former President Donald Trump began his presidential term in 2016, he pledged to make it easier for consumers to buy American products. He proceeded to put import taxes on certain goods entering the country, leading some nations, such as China, to hit back with punitive measures of their own. In 2018, Trump imposed safeguard tariffs of $8.5 billion on imports of solar panels and $1.8 billion on washing machines. The intended target was China.

Several embargoes have targeted the U.S. in the past. In the 1970s, for example, the U.S. economy suffered from an oil embargo imposed by member nations of the Organization of the Petroleum Exporting Countries (OPEC). That particular embargo caused fuel shortages, rationing, and soaring gas prices.

Impact of Embargoes

Effectiveness

In their goal to influence another nation's actions and policies, embargoes are usually not effective. For example, the U.S. embargo on Cuba from the late 1950s has had little impact on changing the country's communist agenda and the treatment of its people.

Similarly, Russia's political actions in the 21st century have resulted in a multitude of nations placing sanctions on the country; however, these sanctions did little to deter Russia's actions, such as its invasion and annexation of Crimea from Ukraine in 2014. Even after the annexation, sanctions did little to stop Russia's cyber-warfare and its build-up of troops on the Ukrainian border.

In February 2022, Russia once again invaded Ukraine. U.S. President Joe Biden announced sanctions on Feb. 22, 2022, against Russia in response to the military aggression against Ukraine, including the advancement of Russian troops into two separatist regions of eastern Ukraine. The Biden administration said this is the "first tranche of sanctions that go far beyond 2014, in coordination with allies and partners in the European Union, United Kingdom, Canada, Japan, and Australia."

The sanctions are mostly economic and include blocking two state-owned Russian financial institutions—Vnesheconombank and Promsvyazbank and their subsidiaries, which provide financing to the Russian military. Other sanctions included prohibiting the purchase of new Russian sovereign debt and banning U.S. companies and individuals from buying sovereign debt in the secondary market. Five Russian elites and their families have also been targeted.

Consequences

Embargoes typically damage the economies of economically weaker nations than they do of economically stronger nations and this usually hurts the citizens of a nation more than it does its leaders, specifically nations under autocratic rule, such as Iran. And often these embargoes do little to change the policies and actions of the country to which embargoes are placed on.

Countries that embargoes are placed on usually only see their citizens lose access to important goods and services. Businesses in the country that imposes the embargo also miss out on trading and investment opportunities, damaging their bottom line and even existence.

Furthermore, embargoes usually result in a tit for tat, meaning the country being embargoed counter-embargoes, negatively impacting trade, businesses, and citizens of both nations even more.

Special Considerations

The ability of countries to trade globally is also impacted if they do not join the World Trade Organization (WTO), an international institution that oversees global trade rules between nations. WTO promotes and manages free trade for its members. As a result, members often only trade with each other. The WTO currently has 164 members. Twenty-five countries and jurisdictions have observer status, including Iran and Iraq.

What Countries Does America Embargo?

There are six embargoed countries with the United States. They are Russia, Sudan, Iran, North Korea, Cuba, and Syria.

What Are the Disadvantages of an Embargo?

Disadvantages of an embargo include essential goods and services being withheld from the citizens of a nation on which an embargo is placed, missed opportunities for investment and trade for businesses of the country that places the embargo, as well as counter-embargoes that further damage trade and prosperity.

What Are the Types of Embargoes?

Embargoes can be economic, political, environmental, and strategic. Embargoes place specific trade restrictions between countries and are enacted for one or more of the aforementioned reasons.

How Can a Country Respond to a Trade Embargo?

Countries can respond to trade embargoes by finding other trading partners, pursuing military action, placing a counter-embargo, or internally filling the gap created by the embargo (self-sufficiency).

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Cambridge University Press. "The Secret Life of Statutes: A Century of the Trading With the Enemy Act."

  2. U.S. House of Representatives. "50 USC Ch. 35: International Emergency Economic Powers."

  3. U.S. Department of the Treasury. "Office of Foreign Assets Control - Sanctions Programs and Information."

  4. Yale University Economic Growth Center. "Sanctions on South Africa: What Did They Do?"

  5. Peterson Institute for International Economics. "Using Sanctions to Fight Terrorism."

  6. Peterson Institute for International Economics. "Trump's Trade War Timeline: An Up-to-Date Guide."

  7. BBC. "China Brings in New Law to Fight Trump's Sanctions."

  8. U.S. Department of State Office of the Historian. "Oil Embargo, 1973–1974."

  9. Brookings. "Crimea: Six Years After Illegal Annexation."

  10. The White House. "Fact Sheet: United States Imposes First Tranche of Swift and Severe Costs on Russia."

  11. World Trade Organization. "Members and Observers."

  12. World Population Review. "Embargoed Countries 2022."

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