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Huang, H. Weaponization of Finance. Encyclopedia. Available online: (accessed on 29 November 2023).
Huang H. Weaponization of Finance. Encyclopedia. Available at: Accessed November 29, 2023.
Huang, Handwiki. "Weaponization of Finance" Encyclopedia, (accessed November 29, 2023).
Huang, H.(2022, November 29). Weaponization of Finance. In Encyclopedia.
Huang, Handwiki. "Weaponization of Finance." Encyclopedia. Web. 29 November, 2022.
Weaponization of Finance

The term weaponization of finance refers to the foreign policy strategy of using incentives (access to capital markets) and penalties (varied types of sanctions) as tools of coercive diplomacy. The term was first coined by political scientists Ian Bremmer and Cliff Kupchan. It became one of the main themes of the Eurasia Group’s Top Risks 2015 report. It is a reference to the new ways in which the United States is using its influence to affect global outcomes. Rather than rely on traditional elements of America’s security advantage – including US-led alliances such as NATO and multi-lateral institutions such as the World Bank and the International Monetary Fund – Washington is now ‘weaponizing finance’ by limiting access to the US marketplace and US banks as an instrument of its foreign and security policy.

foreign policy multi-lateral weaponization

1. Rational

According to the US Treasury Secretary Jack Lew, the weaponization of finance offers to the US “a new that enables [the US] to go after those who wish [the US] harm without putting [US] troops in harm’s way or using lethal force.” [1] Instead of fighting countries militarily, the US can now “cripple them financially.”[2] Examples of the weaponization of finance include US economic sanctions against Russia , Iran, and North Korea.[2] The US sanctions program aimed at penalizing cyberhackers and cyberespionage, launched in April 2015, is another example.[3] An example of an attempt to promote social changes to a nation is the US sanctions toward South Africa to pressure the government into abandoning apartheid laws with the enacting of the Comprehensive Anti-Apartheid Act of 1986.[4]

In discussions on the weaponization of finance, Bremmer argues that, by excluding hostile governments and their senior officials from western financial markets, Washington and its allies “can pursue diplomacy with a streak of coercion.”[5] He writes of the way in which the weaponization of finance evolved from previous foreign and security strategies. “George Washington carried a musket. Franklin Roosevelt sent in heavy bombers. But for President Barack Obama, who must reconcile a weary American public with the demands of an increasingly unstable world, the armament of choice has been a weaponised form of finance.”[5] In this light, economic sanctions can be thought of as “trusty swords.”[5] Since the year 2015, the United States of America has taken vast measures, that made them affect other nations, in terms of how weapons are financed. This was due to the way the United States of America has handled internal and external policies.[6]

2. History of Sanctions in International Law

Pre-first World War principles stated that the balance of military power must be kept in equilibrium with co-existing countries, but these principles were later replaced to create a system of International cooperation, says Lutfullah. The production of The League of Nations in 1919 was a major driver toward this new system. This system would become a major force for harnessing the powers of sanctions, and it heavily influences how sanctions are applied today. This system was created within a mutual agreement between member states to create a framework to solve differences among themselves. The sanctions against Mussolini's Italy in 1935 was one of the first sanctions that the league imposed, although it was rendered powerless by the rise of Hitler's military power. After World War Two, the League of Nations was replaced by the more expansive United Nations in 1945. Sanctions have become a commonly used foreign policy tool in the 21st century in countless situations ranging from disputes to hostile confrontations.[7]

2.1. The United Nations

The United Nations (UN) uses finances as a tool to achieve political change. The UN began using sanctions to achieve political change since 1966. This use of weaponized finance can be seen in Article 41 of Chapter VII of the United Nations Charter.[8] The UN has established 26 of these regimes since its founding, 13 of which are still in effect today.[9] Each of these sanctions regimes are headed by a council who oversees and monitors that specific regime. Afghanistan, the Democratic Republic of the Congo, Iraq, Iran, North Korea, and Somalia are some of the effected countries of these sanctions.[10] The sanctions imposed currently are aimed at a political settlement of conflicts, nuclear non-proliferation, and counter-terrorism. These sanctions include the termination of economic and communications relations with states. Similarly, finances are used as incentives to achieve change as well. One such change can be the preservation of the dugong, an endangered species.[11] These incentives include monetary offerings given, for specified use within the country.

3. Economic Sanctions

Economic Sanctions are the practice of withholding an economic advantage from another country for political purposes. Economic Sanctions primarily come in two forms, Trade and Financial. Trade sanctions can take the form of reducing or refusing exports to a country or refusing imports from the country.[12] Financial Sanctions address monetary issues as opposed to trade. This can include blocking of government assets abroad as well as limiting access to financial markets.[13] These approaches are often used in conjunction in order to increase the effectiveness of the Sanctions. The influence of a sanction is heavily dependent on the economic power of the country or countries imposing the sanction, this also leads to groups of nations such as the United Nations being capable of imposing more effective sanctions due to their combined influence on the world economy. They frequently act as a form of external pressure on a country, primarily being used in an attempt to coerce a country into either abandoning a controversial policy or to adopt one that is seen as beneficial to the country imposing the sanction. However much of the time the imposing of a sanction can unintentionally work against a positive outcome, weakening the economy of all countries involved through reduced trade and causing a reduction in the welfare of the involved populations, while also causing increasingly strained relations between the countries.[13]

4. Examples of Sanctions by Country

4.1. Russia

Russia has been known to utilize the weaponization of finance to achieve its political goals on the international stage. Russia's focus has been primarily on implementing sanctions against the pro-Western regimes of former Soviet Union states. The Kremlin's aim is particularly on states that aspire to join the European Union and NATO, such as Serbia, Ukraine , Moldova, and Georgia.[14] According to the Kremlin Playbook, Russia's desire is to present its model of governance as a more attractive and conducive alternative to the U.S.-dominated West.[14] One way in which Russia aims to influence countries in Central and Eastern Europe is by dominating strategic sectors of a state's economy; also known as "economic capture".[14] Russia would appear to be implementing a strategy of influence, as opposed to brute force; a key element in General Valery Gerasimov's doctrine of New Generation Warfare.[14]

Russia and Ukraine

Viktor Yushcenko, the third president of Ukraine who was elected in 2004, lobbied during his term to gain admission to NATO and the EU.[15] Before his election, the Ukraine received natural gas from Russia at a subsidized rate, much lower than states in the rest of Europe were paying. In 2004, Western European states receiving natural gas from Russia were paying about $235(USD)/TCM (thousand cubic meters); while Ukraine enjoyed a subsidized rate of $50/TCM.[15] Soon after Yushchenko entered office, Russia demanded Kiev pay the same rate that it charged Western European states. This quadrupled Ukraine's energy bill overnight.[15] While Russia had been rather forgiving when it came to Ukraine's energy debts in the past, it now began to enforce repayment of the debt, threatening to cut off all natural gas supply to Ukraine if the debt was not paid.[15] Russia actually did cut off the supply of natural gas in 2006, forcing factories into long term shutdowns that would deal a heavy blow to the Ukrainian economy.[16] As the Ukrainian economy began to struggle, Yushcenko's approval ratings dropped significantly; reaching the single digits by the 2010 election.[15] Viktor Yanukovych won the election in 2010 to become the fourth president of Ukraine. Yanukovych was more supportive of Moscow, and Ukraine quickly received a significant reduction in natural gas prices.[15]

Russia and Georgia

The Rose Revolution in Georgia brought Mikhail Saakashvili to power as the third president of Georgia. Saakashvili wanted to bring Georgia into NATO and the EU while also being a heavy supporter of the U.S. led war in Iraq and Afghanistan.[17] Russia would soon implement a number of different sanctions on Georgia. The Russian state gas monopoly, Gazprom, increased the price of natural gas going to Georgia from $50/TCM to $235/TCM.[17] Russia also used trade sanctions on impact the Georgian economy. Georgia exports wine, citrus fruits, and mineral water to Russia. To Georgia, Russia is important to the state's exports; to Russia, Georgia is not a very significant trading partner. In 2006, Russia banned all imports from Georgia which was able to deal a significant blow to the Georgian economy.[17] Many Georgians rely on employment opportunities across the border in Russia; primarily seeking employment in order to send remittances back home to relatives. While Russia imposed energy and import sanctions on Georgia in 2006, it also implemented sanctions against Georgian migrants; expelling nearly 2,300 Georgians after issuing 4,600 deportation notices.[17] The sanctions had dealt a significant blow to the Georgian economy. In the 2012 and 2013 elections, the Georgian population elected to oust Saakashvili and his political party.[17]

Russia and Belarus

Through the use of power and Russia’s vast possession of energy resources, this has led them to be labeled as a foreign policy tool. Belarus in particular has been a country that has gained most of its energy through Russia.[18] Russia subsidized their energy and sold it to Belarus at lower rates. Russia has gained a significant amount of power and it is expected to gain even more power as energy becomes increasingly rare. Belarus is more than just a country that depends on Russia, it serves as being a trade route for Russia, because Belarus provides passage to the west. The process of transporting energy and weapons becomes easier for Russia when they have a country like Belarus. Belarus obtains all of its natural gas and petro carrots from the country of Russia. By Russia providing aid such as petro carrots to leaders who are in alliance with Russian policies, this helps promote Russia to be a dominant force in the west. Giving aid at a cheaper rate to Belarus gives assurance to Russia that the country will stand by them. Since Belarus allows Russia to trade through their country, Russia rewarded them with extremely cheap gas. Instead of Belarus paying the 230 dollars per TCM, Belarus had to only pay 47 dollars per TCM.[18] This is significantly lower than what the Ukraine, and Georgia both had to pay.[18] Russia allowed for the country of Belarus to pay off their debts, if only they gave up claims on assets that they both were jointed with. The economy thrives significantly, because of the benefits Russia provides them.

4.2. Somalia

Somalia began suffering the effects of the United Nations' sanctions in April 1992, after the overthrow of the Siad Barre led coup in 1991 during the Somali Civil War. The sanction is overseen by the Security Council Committee pursuant to resolutions 751 (1992) and 1907 (2009) concerning Somalia and Eritrea. During the 1992 council meeting, in which Somalia was present but unable to cast vote, members of the United Nations were required to implement an arms embargo on all deliveries of weapons and military equipment to Somalia, including the financing of these deliveries.[19] The sanction also included a ban on travel to the country, the sale of coal, and freeze on other assets.

4.3. North Korea

Beginning is 2006, the United Nations Security Council passed Resolution 1718 in response to a nuclear test that the Democratic People's Republic of Korea (DPRK) conducted in violation of the Treaty on Non-Proliferation of Nuclear Weapons. The Resolution placed sanctions on the DPRK that banned the sale of military and luxury goods as well as freezing the government's assets.[20] Since then, the United Nations have passed multiple resolutions. The most recent resolution was Resolution 2375 that came into effect September 11, 2017. Resolution 2375 puts a full ban on supply, transfer or sale of natural gas to the DPRK as well as exports of textiles from the DPRK.[21] Resolution 2375 also imposes stricter financial restraints on North Korea. Another resolution, Resolution 2270, puts restrictions on transport personnel and vehicles employed by DPRK as well as restricting the sale of natural resources as well fuel for aircraft.[22] The United Kingdom noted that these sanctions were the "toughest measures the Security Council has ever taken".[23] These sanctions, in response to hostile actions taken by North Korea in the form of nuclear and ballistic tests, are intended to keep the DPRK out of the world economic system and cripple the government so that it does not have the resources to continue its nuclear program. When, in 2005, the United States placed sanctions on Banco Delta Asia, a banking system suspected of laundering for North Korea, other banks pulled back and refused business with Banco Delta Asia based on world opinion. These actions taken by the United Nations and United States represent their attempts to turn the financial system of the world into a weapon to be used against the DPRK so that physical violence is not necessary.

There is some discussion on the effectiveness of these sanctions. According to William Brown, of Georgetown University, "sanctions don't have much of an impact on an economy that has been essentially bankrupt for a generation".[24]

4.4. Iraq

According to David Cortright and George Lopez, Sanctions caused erosion of the Iraqi military and depleted resources that were crucial to the creation of weapons. United Nation Sanctions that began against Iraq in August of the year 1990 are one the most long-running weaponization of finance examples that have remained of significant importance to world affairs today. These long holding sanctions that had been imposed by the UN were critical to hindering Iraq's development of weapons of mass destruction. These sanctions cut off trade with other countries as well as barred Iraq oil exports, ruining the Iraqi economy. These sanctions had other consequences, resulting in an uprising in poverty and easily preventable deaths in the 1990s among children.[25]

4.5. Libya

On February 26, 2011, the Security Council of the United nations issued sanctions against the country of Libya.[26] This act was called Security Council Resolution 1970. The purpose of this resolution was to issue sanctions against Libya, to create an arms embargo. The embargo was on the supply of arms and military equipment being shipped to and from Libya. The sanctions did not come out of anywhere. The sanctions against Libya were created from the turmoil, the unjust political instability, and the violation of human rights that were occurring in Libya. The problems that were occurring In Libya seem to get worse as the year went on. Later that year on March 17, 2011, Security Council Resolution 1973 was created.[26] This resolution established a no fly zone over Libya. The no fly zone required that all member states of the United Nations were to inspect cargo that was deemed to be suspicious, leaving and coming into Libya. The member states of the United Nations had created their own panel to investigate the cargo, so that everything is monitored properly. The most recent activity dealing with the Libyan embargo occurred in June 2016. In June 2016, the United Nations Security Council created a policy that for one year vessels on the Libya’s coast must be inspected.[26] There were rumors that came up stating that vessels in that area were in violations of the arms embargo. Due to all of the suspicion and rumors, this caused the United Nations to extend the embargo to June 2018. The sanctions against Libya have had a large economical effect to the society there. Under the embargo, Libya has suffered serve inflation, because of the increased dependence on the private sector to import goods. The country was starting to receive a limited amount of oil revenues which cause the prices of oil to fall.[27] The sanctions caused large cuts to health and education, which caused social conditions to decrease. Even though the sanctions were in response to human rights, their effects were limited, because human rights were still being violated in Libya, by the government. Due to the embargo being based on control over the ports in Libya, this can create a problem. The embargo can prevent things like medicines and helpful products to be shipped into Libya.[28]

5. Effectiveness of Sanctions

The effectiveness of Economic Sanctions has been determined in the past by several variables that may be used to predict the most likely outcome. These variables include the power of the countries involved, both militarily and economically, and the resolve or commitment of both the country imposing the sanction and the country the sanction is being imposed on.[29] Powerful countries imposing economic sanctions with relatively low levels of commitment towards weaker countries have a strong tendency to fail due to the limited impact, while higher levels of commitment lead to a higher rate of success. When both countries are considered powerful there is a higher chance of an imposed sanction being effective regardless of the level of commitment. This is thought to be due to the fact that more powerful countries have a tendency to be heavily globalized and thus have significant assets that could potentially be seized if a sanction was imposed, as well as the fear that a sanction between powerful countries could disrupt the economy significantly. Weaker countries tend to not be heavily globalized, therefor the impact can be limited if the commitment is low.[29]

6. Criticisms

There is little evidence to suggest that the weaponization of finance is effective in changing the behavior of geopolitical actors. Moreover, western companies often suffer the blowback of Washington’s activity. BNP Paribas, for example, was fined $8.9 billion for US sanctions violations in Cuba, Sudan, and Iran.[30] Bremmer argues that, while it is deemed effective by US political leaders, the weaponization of finance has served to weaken America’s relationship with Europe.[2]

7. Moral Consequences of Economic Weaponization

With weaponization of finance, sanctions are one of the many ways to utilize authority over other countries. Sanctions are one of the most intrusive methods when it comes to putting barriers on other countries to comply with demands, propositions Peksen. The moral consequences are many to be considered, as these sanctions can also cause collateral damage on ordinary citizens. Peksen implies that sanctions can degenerate human rights in the target country.[31]

Sanctions against white-ruled South Africa were strongly opposed by U.S. administrators, from Kennedy to Reagan. These presidents repeatedly argued that sanctions were dangerous for blacks in South Africa. The reason for these sanctions was the want for raw resources the U.S needed. With Institutionalized racism prevalent in South Africa, this was seen as a dangerous topic that could lead to moral hazard.[7]

The imposing of an embargo can lead to long lasting economic impacts on not only the population of the target country, but the global economy itself. After the OPEC Oil Embargo against countries supporting Israel in the Yom Kippur War, the prices of oil quadrupled, causing the price of food to increase as well. This had far more of an impact on developing countries, primarily in Sub-Saharan Africa. This led to both a humanitarian and economic crisis that continues decades after the OPEC Oil Embargo was lifted.[32]


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  2. Campione, Joanna. [4], "Yahoo! Finance," January 14, 2015.
  3. Bertrand, Natasha and Kelley, Michael B. [5], "Business Insider." April 1, 2015.
  4. "Executive Order 12571 -- Implementation of the Comprehensive Anti-Apartheid Act". 
  5. Bremmer, Ian. Obama pushes power of weaponised finance to its limits, "Financial Times," March 3, 2015.
  6. "U.S. use of unilateral "weaponization of finance" makes top ten geopolitical risks of 2015" (in en). 
  7. Lutfallah, Manji; Cortright, David (1998). "Sanctions: An Instrument of U.S Foreign Policy". Pakistan Horizon 51: 29–35. 
  8. Section, United Nations News Service (2016-05-04). "UN News - UN sanctions: what they are, how they work, and who uses them" (in en). 
  9. United Nations News Service (2017-08-03). "UN sanctions 'formidable instrument for global peace and security,' Security Council told". UN News Centre. 
  10. "Category:UN Embargoed Countries - Sanctions Wiki" (in en). 
  11. Section, United Nations News Service (2011-03-14). "UN News - New UN project uses financial incentives to try to save the dugong" (in en). 
  12. Miroslav., Nincic (1988). United States foreign policy : choices and tradeoffs. Washington, D.C.: CQ Press. ISBN 0871874490. OCLC 17264286. 
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  18. Newnham, Randall (2011-07-01). "Oil, carrots, and sticks: Russia's energy resources as a foreign policy tool". Journal of Eurasian Studies 2 (2): 134–143. doi:10.1016/j.euras.2011.03.004. ISSN 1879-3665. 
  19. "Security Council Committee pursuant to resolutions 751 (1992) and 1907 (2009) concerning Somalia and Eritrea | United Nations Security Council Subsidiary Organs" (in en). 
  20. "North Korea | Countries | NTI". 
  21. "Resolutions | United Nations Security Council Subsidiary Organs" (in en). 
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  23. ""This resolution is a step change. It contains some of the toughest measures the Security Council has ever taken. " - GOV.UK" (in en). 
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  30. Stothard, Michael and Arnold, Martin. [6], "Financial Times,' February 15, 2015.
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  32. Dambisa, Moyo (2010-03-02). Dead aid : why aid is not working and how there is a better way for Africa (First American paperback ed.). New York. ISBN 9780374532123. OCLC 429024670.
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