How do economic sanctions work: asset freezes, SWIFT and secondary sanctions?

Economic sanctions are commercial and financial penalties applied by states or institutions against states, groups or individuals. They are a form of coercion: the aim is to get someone to change behaviour, or to stop an action, by disrupting their economic exchange with the world. They work through a few main tools: asset freezes, trade barriers, restrictions on financial transactions, and a warning to third parties called secondary sanctions.

Sanctions can target a whole country, or they can be aimed at individuals or groups, a form sometimes called smart sanctions. Prominent forms include trade barriers, asset freezes, travel bans, arms embargoes and restrictions on financial transactions. An asset freeze is a direct tool: the US list of Specially Designated Nationals, with about 12,000 names, blocks their US assets and bars US persons from any transactions with them.

Payments are another pressure point. SWIFT is a cooperative owned by the banks that use it, set up in 1973, and it provides the main messaging network through which international payments are initiated. In 2012 SWIFT disconnected Iranian banks identified as being in breach of EU sanctions, and in 2022 the EU, UK, Canada and US agreed to remove a few Russian banks from the system.

Secondary sanctions reach further. They threaten to sanction countries for trading with a sanctioned country or government. Primary US sanctions restrict only US companies, institutions and citizens; secondary sanctions also affect non-US persons. A 2026 example: on 1 May 2026 the US Treasury's Office of Foreign Assets Control said that US persons were generally banned from paying Iranian government entities for safe passage through the Strait of Hormuz, and that non-US persons who made such payments might risk exposure to sanctions.