Economic Sanctions: How They Work, Why They Fail, and Why Governments Keep Using Them

The logic behind economic sanctions is a chain with four links. Each link must hold for the strategy to succeed.

First, a government restricts trade, freezes assets, or cuts a target country off from the international financial system. The tools range from broad trade embargoes (banning most commerce with an entire country) to “targeted” or “smart” sanctions aimed at specific individuals, companies, or sectors. The United States can also impose secondary sanctionsEconomic penalties imposed on third parties that conduct trade or business with a sanctioned entity, designed to isolate the target by limiting its access to international commerce., which punish third-country companies that continue doing business with the target.

Second, these restrictions are supposed to inflict economic pain. Industries lose access to critical imports. Banks cannot process international transactions. Government revenues fall.

Third, the pain is supposed to create domestic political pressure. Citizens and business elites, feeling the cost, are expected to push their government to change course. In a democracy, this might mean voting the government out. In an authoritarian state, the theory assumes that elites close to the regime will pressure the leader directly.

Fourth, the target government, facing internal pressure, is supposed to change the behavior that triggered sanctions in the first place: stop a nuclear program, withdraw from occupied territory, release political prisoners, or end human rights abuses.

Each link in this chain can break. The history of economic sanctions is largely the history of these links breaking.

The theoretical mechanism underlying economic sanctions is a transmission chain with four stages, each dependent on the previous one holding.

Stage 1: Economic restriction. The sender state deploys one or more instruments: comprehensive trade embargoes, sectoral sanctions (energy, finance, defense), asset freezes on designated persons, financial exclusion (including disconnection from the SWIFT messaging system), travel bans, and secondary sanctionsEconomic penalties imposed on third parties that conduct trade or business with a sanctioned entity, designed to isolate the target by limiting its access to international commerce. that penalize third-country entities continuing commercial relations with the target. The U.S. Treasury’s Specially Designated Nationals (SDN) List is the primary enforcement mechanism; entities on the list are effectively cut off from the dollar-denominated financial system.

Stage 2: Economic cost. The restrictions are intended to degrade the target’s GDP, reduce government revenue, restrict access to technology and capital, and increase the cost of conducting international trade. A CEPR analysis of 172 sanctions episodes found that cost impositionA strategy of inflicting economic and political damage on an adversary to make the costs of continued conflict outweigh the expected benefits. is the most reliable stage: sanctions almost always inflict measurable economic damage.

Stage 3: Domestic political pressure. The economic pain is expected to generate internal demands for policy change, either through electoral mechanisms (in democracies) or through elite bargaining and public discontent (in autocracies). This is the critical assumption, and research consistently shows it is the weakest link. The probability of sanctions succeeding against a democracy is roughly twice as high as against an autocracy, according to the CEPR analysis of the Peterson Institute database.

Stage 4: Behavioral change. The target government, facing domestic pressure, modifies or abandons the policy that triggered sanctions. This stage also requires that the demanded change be something the target considers negotiable, not a core regime survival interest.

Each stage can fail independently. The aggregate result is a success rate of approximately 34% for sanctions imposed before 1990, improving to roughly 40% for those imposed after 1990, according to the same CEPR analysis. The improvement is modest, and it reflects better design rather than a fundamental solution to the mechanism’s structural flaws.

Pain Goes to the Wrong People

The single biggest reason economic sanctions fail is that the people who suffer the most are rarely the people who make decisions. Authoritarian leaders can shield themselves and their inner circle from economic consequences while ordinary citizens bear the cost. North Korea’s Kim regime, for example, has survived decades of comprehensive sanctions by redirecting scarce resources to its military and political elite while the broader population endures poverty and food insecurity.

Iran offers a similar pattern. Research tracking Iranian food consumption between 1991 and 2021 found that sanctions forced vulnerable populations to replace nutritious foods like red meat with cheaper alternatives like bread. The economic pressure landed on kitchens, not on the offices where nuclear policy was made.

Sanctions Can Strengthen the Regime They Target

One of the most counterintuitive findings in sanctions research is that foreign economic pressure can actually increase public support for the targeted government. Research by the Australian Institute of International Affairs has documented this “rally around the flag” effect: sanctioned leaders frame the economic pain as a foreign attack on the nation, converting economic grievance into nationalist solidarity. The regime, not the sanctioner, becomes the sympathetic party.

This is not a marginal effect. Research on authoritarian regimes has found that sanctions and even the threat of sanctions can significantly increase pro-government mobilization. The mechanism works in both directions: citizens who support the regime feel more motivated to demonstrate loyalty, and the regime itself invests more effort in staging displays of public support.

Third Countries Fill the Gap

Economic sanctions assume the target cannot easily replace lost trade. In a multipolar world, this assumption increasingly fails. When Western nations sanctioned Russia after the 2022 invasion of Ukraine, research using the Global Sanctions Database found that Russia rapidly expanded trade with non-sanctioning countries. Bilateral trade between Russia and India more than doubled. Trade with China and Turkey surged similarly.

The researchers concluded that this trade liberalization with third countries may have offset the negative impact of sanctions entirely, and may have even improved Russia’s trade welfare compared to the pre-sanctions baseline. The Trump administration’s 2025 sanctions waiverTemporary authorization to conduct transactions or commerce normally prohibited under economic sanctions, issued by a government agency. on Russian oil compounded this dynamic further.

Targets Adapt Over Time

Countries under long-term sanctions develop parallel economic systems. North Korea has built an entire smuggling infrastructure, using ship-to-ship oil transfers, cryptocurrency exchanges, and front companies across dozens of countries. Iran has spent decades building a sanctions-resistant economy with domestic manufacturing capacity specifically designed to circumvent trade restrictions. Cuba has endured a U.S. embargo since the Eisenhower administration, more than six decades, without the political system that sanctions were supposed to topple showing any sign of collapse.

The longer sanctions last without achieving their objective, the more resilient the target becomes.

Cost Incidence: The Principal-Agent ProblemA conflict of interest where a decision-maker (the agent) acts in their own interest rather than in the interest of the party they are supposed to serve (the principal).

The most robust finding in sanctions research is that economic costs are imposed reliably but distributed perversely. Authoritarian leaders, who are the intended targets, can insulate themselves and key supporters from economic hardship by redistributing scarce resources upward. The Council on Foreign Relations’ assessment of North Korean sanctions identifies this as the primary failure mode: Pyongyang has shielded its ruling circle from the economic costs of sanctions while employing repression to quell dissent.

The Iran case is instructive. Analysis by the Australian Institute of International Affairs found that under the Trump administration’s “maximum pressureA foreign policy strategy combining economic sanctions, diplomatic isolation, and other coercive measures to force a targeted government to change its behavior or policies.” campaign (reimposed 2018), Iran did not curtail its nuclear program but accelerated it, and strengthened rather than weakened its regional proxy network. The economic pain was real; the behavioral change was the opposite of what was intended.

The Rally Effect: Sanctions as Regime Legitimation

Research by the Australian Institute of International Affairs has examined whether sanctions cause a “rally around the flag” phenomenon in non-democratic states. Using machine learning to analyze Iranian social media during the Trump administration’s sanctions, researchers found that comprehensive sanctions created rally effects even among moderate opposition figures. Targeted leaders exploit sanctions as a scapegoat for economic difficulties (whether or not sanctions are the actual cause) and frame foreign economic pressure as an attack on national sovereignty.

Research on authoritarian regimes has found that both sanctions and the credible threat of sanctions can increase pro-government mobilization. The mechanism operates on two levels simultaneously: sanctions increase regime supporters’ willingness to participate in demonstrations, and they increase the regime’s demand to display and overstate popular support.

This finding has a critical policy implication. Comprehensive sanctions imposed on regimes with strong claims to domestic legitimacy, and limited economic ties to the sanctioning state, are the most likely to trigger rally effects. That is precisely the profile of most high-priority sanctions targets.

Trade DiversionThe redirection of a country's trade flows to new partners when sanctions cut off established relationships, potentially offsetting the economic impact of those sanctions.: The Third-Country Problem

Sanctions effectiveness depends on the target’s inability to substitute lost trade relationships. CEPR research published in March 2025, using the fourth release of the Global Sanctions Database, quantified this problem for the Russia case. The 2022 sanctions reduced Russia’s trade with sanctioning states by approximately 25% on average, but the effects were highly heterogeneous across the EU, with some member states actually increasing trade with Russia.

More significantly, bilateral trade costs between Russia and India fell so dramatically that trade between the two countries more than doubled immediately after 2022. Similar trade liberalization occurred with China and Turkey. The authors concluded that trade diversion to third countries may have offset the negative impact entirely, and may have even improved Russia’s welfare due to gains from trade.

As a CSIS analysis published in March 2025 noted, the sanctions regime against Russia presents a paradox: proponents argue sanctions have deprived Russia of more than $500 billion in potential war funds and forced it to pay more than ten times the global market rate for crucial military inputs, while critics counter that 80 percent of Russia’s oil exports still take place above the G7 price cap. The Trump administration’s 2025 sanctions waiverTemporary authorization to conduct transactions or commerce normally prohibited under economic sanctions, issued by a government agency. further undermined the price ceiling.

Temporal Adaptation

The CEPR analysis of the Peterson Institute database found that two-thirds of successful sanctions achieved their objectives within three years. Among failed cases, two-thirds lasted significantly longer. This is not merely a correlation; it reflects the target’s capacity to build evasion infrastructure over time.

North Korea has developed a sophisticated evasion network involving ship-to-ship transfers of petroleum products, cryptocurrency-based financial flows, and front companies distributed across dozens of jurisdictions. The UN Security Council has passed nearly a dozen resolutions since 2006 restricting trade with North Korea. Over that same period, Pyongyang has expanded, not reduced, its nuclear weapons capability.

The CEPR analysis also found that the success rate reaches 50% when the target country’s bilateral trade with the sanctioner exceeds 10% of the target’s GDP. When that figure drops below 2%, the failure rate reaches 80%. The countries that are easiest to sanction effectively (small, trade-dependent, friendly democracies) are rarely the ones that pose the geopolitical problems sanctions are designed to solve.

South Africa under apartheid is the case sanctions advocates most often cite, and for good reason. International economic pressure, including divestment by major banks and the U.S. Comprehensive Anti-Apartheid Act of 1986, contributed to the conditions that led to the end of white minority rule and the release of Nelson Mandela in 1990. Mandela himself, when asked whether sanctions helped end apartheid, said: “Oh, there is no doubt.”

But the South Africa case came with conditions that do not apply to most current sanctions targets. The regime was economically integrated with Western nations, making sanctions genuinely costly. There was a large, organized domestic opposition movement with clear leadership and broad international support. And the sanctions took roughly 30 years, from the first international measures in the 1960s to the political transition of the early 1990s, to contribute to the outcome.

Even in this best-case scenario, early sanctions (arms and oil embargoes in the 1960s and 1970s) were counterproductive in the medium term, solidifying the ruling coalition’s internal cohesion. It was only when the regime faced a genuine economic crisis in the 1980s, compounded by capital flight after major banks refused to extend further credit, that international pressure divided the ruling bloc rather than uniting it.

South Africa is the most-cited case of sanctions success, and the conditions that made it work are instructive precisely because they are rare. International economic pressure, including corporate divestment campaigns, the U.S. Comprehensive Anti-Apartheid Act of 1986 (passed over President Reagan’s veto), and the refusal of Citibank and Chase Manhattan to extend further credit in 1985, contributed to the political transition that ended apartheid.

Mandela confirmed the role of sanctions directly: “Oh, there is no doubt.” But the South Africa case met nearly every condition that the CEPR analysis identifies as predictive of success: the target was economically integrated with the sanctioning states (high bilateral trade as a share of GDP), the goal was relatively specific (end apartheid, not regime change per se), and there was a powerful, organized domestic opposition movement with international legitimacy.

Even so, the timeline was approximately three decades from the first UN General Assembly resolution in 1962 to Mandela’s release in 1990. Early measures were counterproductive: arms and oil embargoes in the 1960s and 1970s solidified the ruling coalition, which used the external threat to justify internal repression. The dynamic only shifted when financial sanctions in the 1980s divided the white business elite from the political leadership, a fracture within the ruling bloc rather than popular uprising against it.

The lesson is not that sanctions cannot work. It is that they work under a narrow set of conditions: economic dependence on the sanctioner, a mobilized internal opposition, a limited and negotiable demand, and a great deal of time. Most current sanctions targets meet none of these criteria fully.

If sanctions fail more often than they succeed, why do governments keep imposing them? The answer has less to do with whether sanctions work on the target and more to do with what they accomplish for the sender.

Sanctions occupy the space between diplomatic protest (which feels weak) and military action (which is costly and risky). When a government faces a foreign policy crisis and the public expects action, sanctions offer something visible and immediate. They can be announced in a press conference, implemented by executive order, and explained in a sentence. No troops are deployed. No body bags come home.

This makes sanctions politically useful even when they are strategically ineffective. A government that imposes sanctions can point to “action taken” without bearing any of the costs associated with military intervention. The domestic political incentive, appearing tough on an adversary, is often stronger than the foreign policy incentive to actually change behavior. This dynamic helps explain why sanctions regimes tend to persist long after evidence suggests they are not working: lifting them would look like concession, even if maintaining them accomplishes nothing.

There is also a domestic lobbying dimension. Sanctions create winners and losers within the sender’s own economy. Companies that lose access to sanctioned markets push for exemptions or waivers. Companies that benefit from reduced competition lobby to keep sanctions in place. The policy becomes entangled in domestic commercial interests, independent of whether it is achieving its stated foreign policy objective.

The persistence of sanctions despite their limited success rate is itself a finding that requires explanation. Several reinforcing dynamics account for it.

The alternatives problem. Sanctions occupy the policy space between diplomatic signaling (perceived as insufficient) and military force (costly, risky, and often disproportionate). For policymakers facing a crisis where “doing nothing” is politically untenable, sanctions offer the appearance of decisive action with minimal visible cost to the sender. The domestic political incentive to be seen acting often outweighs the foreign policy assessment of whether the action will work.

Sunk-cost persistence. Once imposed, sanctions develop institutional momentum. Lifting them requires a political decision that can be framed as conceding something to the target, even if the sanctions were never achieving their objective. The political cost of appearing to capitulate typically exceeds the political cost of continuing an ineffective policy. This explains why sanctions regimes against Cuba and North Korea have persisted for decades beyond any reasonable expectation of success.

Norm enforcement vs. behavior change. As CSIS analysts have argued, the objective of sanctions is sometimes not behavior change at all but norm enforcement: imposing costs on violations of international rules to deter future violators. Under this framing, sanctions “work” even if the target never changes course, because the cost imposed serves as a signal to third parties. This is a defensible argument, but it is rarely the one presented to the public when sanctions are announced.

Domestic political economy. Sanctions create constituencies within the sender state. Companies excluded from sanctioned markets push for exemptions. Competitors who benefit from reduced competition lobby to maintain restrictions. Compliance industries (law firms, consulting firms, sanctions screening software providers) have a direct financial interest in the expansion and complexity of sanctions regimes. The growth in U.S. designations, from 2,502 SDN additions in 2023 to 3,135 in 2024, partly reflects this institutional momentum.

Sanctions are not useless. They are a tool with a specific, limited range of effectiveness. The evidence suggests they work best when:

• The goal is modest and specific (release a prisoner, modify a trade practice) rather than ambitious (regime change, full denuclearization)
• The target country is economically dependent on the sanctioning country
• Sanctions are imposed quickly and multilaterally, leaving fewer evasion routes
• The target is a democracy with functioning electoral accountability
• The sanctions are lifted promptly when the target complies, reinforcing the incentive structure

When these conditions are absent, sanctions tend to function as a form of economic punishment that imposes real suffering without producing political change. The history of sanctions against Japan’s oil imports before Pearl Harbor is a reminder that economic pressure, when it threatens regime survival without offering a viable off-rampIn diplomacy, a negotiated exit path that allows a party to de-escalate or withdraw from a conflict without appearing to capitulate., can escalate rather than resolve conflict.

The honest assessment is that economic sanctions have become the foreign policy equivalent of a hammer: available, familiar, and applied to every problem regardless of whether the problem is a nail. The question is not whether to use them. It is whether each specific application meets the narrow conditions under which they have historically worked, or whether it is another addition to a database that already runs to nearly 200 cases of failure.

The empirical literature supports a constrained set of conclusions about when economic sanctions can be effective:

• Modest, specific objectives are achievable; regime change and comprehensive behavioral reversal are not. The Peterson Institute database shows dramatically higher success rates for limited demands than for existential ones.
• Economic dependence is necessary. The 50% success rate when bilateral trade exceeds 10% of the target’s GDP, versus the 80% failure rate when it falls below 2%, defines the operational boundary.
• Speed matters. Two-thirds of successes occur within three years. Sanctions that have not produced results by then are more likely to trigger adaptation and rally effects than compliance.
• Regime type is determinative. The twofold higher success rate against democracies reflects the mechanism’s dependence on domestic political accountability, the very feature that autocracies are designed to suppress.
• Multilateral enforcement is essential but increasingly difficult to achieve. The Russia case demonstrates that in a multipolar system where China and India are willing to absorb redirected trade, unilateral or Western-only sanctions face structural limits.

The gap between how sanctions are used (frequently, ambitiously, against autocracies with diversified trade partners) and how they work (occasionally, with modest goals, against trade-dependent democracies) explains the persistent disconnect between policy enthusiasm and empirical results. The United States imposed the oil embargo that helped precipitate Japan’s decision to attack Pearl Harbor, a case where economic pressure absent a viable off-rampIn diplomacy, a negotiated exit path that allows a party to de-escalate or withdraw from a conflict without appearing to capitulate. escalated rather than resolved conflict.

None of this means sanctions should never be used. It means they should be used with the specificity and realism that any tool with a roughly 60% failure rate demands.