Author(s): Mauli Chaudhary
Paper Details: Volume 4, Issue 5
Citation: IJLSSS 4(5) 02
Page No: 11 – 22
ABSTRACT
Economic sanctions have long served as instruments of international governance, deriving their legitimacy from the collective security framework established under the United Nations Charter. In recent decades, however, the increasing reliance on unilateral financial sanctions has transformed global economic interdependence into a mechanism of geopolitical influence, raising important questions concerning their compatibility with foundational principles of international law. Although sanctions continue to play a significant role in maintaining international peace, security, and foreign policy objectives, comparatively little attention has been paid to how the weaponisation of global financial infrastructure has altered their legal character and challenged the institutional framework governing their use. This article argues that the growing use of unilateral financial sanctions has created a crisis of international legality by enabling economic coercion beyond the traditional multilateral framework envisaged under the United Nations Charter. Adopting a doctrinal methodology, the article draws upon international legal instruments, institutional materials, state practice, and academic scholarship to examine the legal evolution of economic sanctions, the emergence of financial coercion as a geopolitical tool, and the implications of initiatives such as BRICS-led financial cooperation for the future of global financial governance. It demonstrates that while economic sanctions remain legitimate instruments of international law in appropriate circumstances, their increasing weaponisation has outpaced the legal and institutional mechanisms designed to regulate them, necessitating renewed emphasis on multilateral governance, legal accountability, and international cooperation.
Keywords: BRICS; Economic Sanctions; Financial Governance; International Legality; Multilateral Governance; Unilateral Financial Sanctions.
INTRODUCTION
Economic sanctions have become one of the most frequently employed instruments of international governance in the twenty-first century. From Iran’s nuclear programme to the Russia-Ukraine conflict, states increasingly rely on economic and financial restrictions to influence behaviours, deter perceived violations of international norms, and pursue foreign policy objectives. Unlike military intervention, sanctions operate through economic pressure, making them appear as a comparatively less coercive mechanism for addressing international disputes.[1]
Traditionally, the legitimacy of sanctions has been linked to the collective security framework established under the United Nations Charter. Under Chapter VII, the United Nations Security Council possesses the authority to determine threats to international peace and security and impose measures not involving the use of armed force.[2] Such sanctions derive their legitimacy from multilateral decision-making and are intended to serve as instruments of collective enforcement rather than unilateral political pressure.
Contemporary sanctions practice, however, extends far beyond the framework originally envisaged by the Charter. Powerful states now impose unilateral sanctions targeting foreign governments, corporations, financial institutions, and individuals. These measures often operate through restrictions on banking systems, access to international financial networks, foreign exchange reserves, and cross-border transactions. As a result, economic interdependence itself has become a tool of strategic influence. This development has given rise to what scholars describe as the “weaponisation of finance”.[3] The concept reflects the growing ability of states occupying central positions within global economic and financial networks to exploit those networks for geopolitical purposes. Financial infrastructures that were originally designed to facilitate international commerce are now being repurposed as mechanisms of coercion, enabling states to impose substantial economic costs without resorting to military force.
The increasing reliance on financial sanctions raises important legal questions. While proponents regard sanctions as necessary tools for maintaining international peace and promoting accountability, critics argue that unilateral financial measures frequently bypass multilateral processes, undermine sovereign equality, and blur the distinction between lawful enforcement and geopolitical coercion. The controversy is sharpened in a world moving toward multipolarity, where emerging powers are actively seeking alternatives to financial systems traditionally dominated by Western states.
This article argues that although economic sanctions continue to serve a legitimate function within international law, the growing weaponisation of global financial infrastructure through unilateral sanctions has generated a crisis of international legality. By examining the legal foundations of sanctions, the emergence of financial coercion, and the challenges posed to sovereignty and multilateralism, the article seeks to evaluate whether contemporary sanctions practices remain consistent with the principles upon which the international legal order was established.
ECONOMIC SANCTIONS AND THEIR LEGAL FOUNDATIONS
Economic sanctions are generally understood as coercive measures intended to influence the conduct of states, organisations, or individuals through economic pressure rather than military force. Such measures may include trade restrictions, financial prohibitions, asset freezes, travel bans, investment limitations, and restrictions on access to international markets. Unlike armed intervention, sanctions seek to alter behaviour by increasing the economic and political costs associated with a particular course of action.[4]
Within contemporary international law, the legitimacy of sanctions is primarily derived from the collective security framework established by the United Nations Charter. The Charter was drafted against the backdrop of two devastating world wars and sought to create an institutional mechanism capable of preserving international peace while limiting unilateral exercises of coercive power. Accordingly, Chapter VII of the Charter empowers the United Nations Security Council to determine the existence of a threat to peace, breach of peace, or act of aggression and to adopt appropriate enforcement measures.[5]
Among these enforcement mechanisms, Article 41 occupies a position of particular significance. It authorises the Security Council to employ measures not involving the use of armed force, including the interruption of economic relations, transportation links, communications, and diplomatic relations.[6] Sanctions were therefore conceived as instruments of collective enforcement operating under international supervision rather than unilateral tools of foreign policy. Their legitimacy stemmed not merely from their objectives but from the multilateral process through which they were authorised.
The evolution of sanctions practice demonstrates a gradual shift in both design and implementation. During the latter half of the twentieth century, sanctions frequently took the form of comprehensive embargoes directed against entire states. However, widespread criticism regarding humanitarian consequences led to the development of targeted or “smart sanctions”. These measures focus on specific individuals, corporations, financial institutions, government officials, or economic sectors rather than entire populations. Asset freezes, travel restrictions, and limitations on financial transactions have consequently emerged as preferred instruments of modern sanctions regimes.[7]
Despite this evolution, a critical distinction exists between multilateral sanctions authorised by the United Nations Security Council and unilateral sanctions imposed independently by individual states. Security Council sanctions derive their authority directly from the Charter and are generally regarded as possessing a clear legal foundation within international law. Unilateral sanctions, by contrast, are imposed outside the collective security framework and are justified primarily through appeals to sovereignty, national security, and foreign policy discretion.[8]
Supporters of unilateral sanctions argue that states possess the sovereign right to regulate their economic relations and may lawfully determine with whom they choose to trade, invest, or conduct financial transactions. From this perspective, sanctions represent a legitimate exercise of state sovereignty rather than a violation of international law.[9] However, critics contend that extensive unilateral sanctions often produce effects extending beyond the territory of the sanctioning state. Through restrictions on international banking networks, payment systems, and financial institutions, such measures may influence the conduct of third states and private actors that have no direct connection to the underlying dispute.[10]
It is at this point that the contemporary debate concerning international legality emerges. While the legal basis of Security Council sanctions remains relatively settled, the increasing reliance upon unilateral financial measures has generated growing controversy regarding sovereignty, equality among states, and the legitimacy of international enforcement mechanisms. The issue is no longer whether sanctions may be used under international law, but whether the expanding use of financial coercion remains consistent with the multilateral principles upon which the international legal order was founded. This transformation provides the foundation for understanding the emergence of finance itself as an instrument of geopolitical power.
FROM ECONOMIC STATECRAFT TO FINANCIAL COERCION
The contemporary sanctions regime differs significantly from the economic sanctions mechanisms originally envisaged under the United Nations Charter. While traditional sanctions largely relied upon trade restrictions and diplomatic isolation, modern sanctions increasingly operate through financial networks that constitute the backbone of the global economy. Access to international banking systems, reserve currencies, payment infrastructures, investment channels, and cross-border financial markets has become indispensable for participation in global commerce. Consequently, the ability to restrict such access has emerged as one of the most powerful instruments of contemporary statecraft.[11]
The transformation of finance into a tool of geopolitical influence is closely linked to the increasing interconnectedness of the global economy. Globalisation has produced highly integrated financial networks that facilitate the rapid movement of capital, information, and transactions across borders. Although these networks were initially celebrated for promoting economic cooperation and interdependence, recent developments have revealed their strategic significance. States occupying central positions within these networks possess the ability to monitor, influence, and, where necessary, restrict access to critical financial infrastructures.
This phenomenon has been conceptualised by Henry Farrell and Abraham Newman through the theory of “Weaponized Interdependence”. According to their analysis, global economic networks are not politically neutral. Instead, they are characterised by asymmetrical structures in which certain states exercise disproportionate influence over key nodes of international exchange. Such states may exploit their privileged positions to gather information, impose restrictions, and exert pressure upon other actors. In this sense, economic interdependence can be transformed into an instrument of coercion rather than cooperation. The significance of this theory lies in its challenge to the traditional assumption that economic interdependence inevitably promotes cooperation. Instead, control over key financial and informational networks may generate strategic leverage, enabling powerful states to influence the behaviour of others.[12]
Few examples illustrate this transformation more clearly than the role of the United States within the contemporary financial system. The dominance of the US dollar in international trade and finance, combined with the centrality of American financial institutions, grants the United States considerable influence over global economic transactions. The continued predominance of the dollar within global reserve holdings and cross-border financial transactions further enhances this influence, reinforcing the central position of American financial institutions within the international monetary system.[13] As a result, sanctions imposed by the United States frequently possess effects extending beyond its territorial jurisdiction. Foreign corporations, banks, and even third states often comply with American sanctions regimes not because they are legally bound under international law, but because non-compliance may jeopardize their access to dollar-denominated markets and financial services.[14]
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) illustrates the strategic importance of financial infrastructure in contemporary international relations. SWIFT functions as a global messaging network that enables secure communication between financial institutions and facilitates cross-border transactions. Although it does not itself transfer funds, its central role in international banking means that exclusion from the network can significantly impede participation in global financial markets. Consequently, access to SWIFT has acquired considerable geopolitical significance. The restrictions imposed upon certain Iranian and Russian financial institutions demonstrated how financial connectivity can be leveraged as an instrument of economic pressure, highlighting the extent to which financial infrastructure has become intertwined with questions of international power and security.[15]
The sanctions imposed upon Iran provide an early example of this development. Throughout the 2010s, extensive financial restrictions targeting Iranian banks and institutions significantly limited the country’s access to global financial markets. These measures were designed to pressure Iran regarding concerns surrounding its nuclear programme and represented one of the most comprehensive uses of financial sanctions in modern history. While supporters viewed such measures as a necessary means of promoting international security, critics argued that their humanitarian and economic consequences extended far beyond the intended political objectives.[16]
More recently, the sanctions imposed following the Russia-Ukraine conflict demonstrated the unprecedented scale of contemporary financial coercion. In addition to traditional economic restrictions, coordinated sanctions targeted Russian financial institutions, sovereign assets, and access to international payment systems. The freezing of central bank reserves and restrictions affecting major Russian banks highlighted the extent to which financial infrastructure could be utilised as a mechanism of geopolitical pressure. These measures illustrated that financial networks have evolved beyond purely economic functions and now operate as strategic instruments capable of influencing state behaviour on a global scale.[17]
The increasing reliance upon financial sanctions has consequently altered the nature of international power itself. Historically, coercive influence was primarily associated with military capabilities or territorial control. Contemporary geopolitics, however, increasingly rewards states capable of exercising influence through networks, institutions, and financial infrastructures. Access to global finance has become a strategic asset, while exclusion from such systems can generate significant economic and political consequences. In this environment, financial connectivity simultaneously functions as a source of economic opportunity and a potential source of vulnerability.
The weaponisation of finance therefore represents more than a mere evolution in sanctions practice. It reflects a broader transformation in the manner through which power is exercised within the international system. Financial networks originally designed to facilitate economic integration now possess the capacity to serve as instruments of coercion, enabling states to achieve strategic objectives without resorting to military force. While this development may enhance the effectiveness of sanctions as a foreign policy tool, it also raises fundamental questions regarding fairness, accountability, and the distribution of power within the international legal order. These concerns become particularly significant when such measures are imposed unilaterally and operate outside traditional multilateral frameworks, thereby bringing the legality and legitimacy of contemporary sanctions practices under increasing scrutiny.
THE CRISIS OF INTERNATIONAL LEGALITY
The increasing reliance upon unilateral financial sanctions has generated a fundamental tension within contemporary international law. While sanctions continue to be justified as instruments for promoting accountability and maintaining international peace, have raised concerns about whether such measures remain compatible with foundational principles of the international legal order. The debate is therefore no longer confined to the effectiveness of sanctions as a policy tool; rather, it concerns whether contemporary sanctions practices remain consistent with the principles of sovereignty, equality, and multilateralism upon which international law is built.
A primary concern relates to the principle of sovereign equality. Enshrined in Article 2(1) of the United Nations Charter, sovereign equality constitutes one of the cornerstones of the international legal system.[18] The principle presupposes that all states, regardless of their economic or political power, possess equal legal status within the international community. Critics argue, however, that often reflects pronounced asymmetries of power. States exercising substantial influence over global financial networks are capable of imposing economic costs on other states without obtaining collective authorisation through international institutions. Consequently, the practical operation of sanctions may reinforce existing power hierarchies rather than the principle of legal equality. This tension demonstrates that legal equality in international law does not always translate into equality of influence in practice.
Closely connected to this concern is the principle of non-intervention. International law has traditionally recognised that states possess the right to conduct their domestic affairs free from external coercion. While economic pressure does not constitute the use of armed force prohibited under Article 2(4) of the Charter, extensive financial sanctions may nevertheless exert considerable influence over the domestic policy choices of targeted states. The distinction between lawful economic measures and impermissible coercion therefore remains a subject of continuing debate within international legal scholarship.[19]
The controversy becomes particularly pronounced in relation to extraterritorial sanctions. Unlike traditional sanctions directed solely at entities within the jurisdiction of the sanctioning state, contemporary sanctions frequently affect third states, foreign corporations, and international financial institutions. Secondary sanctions, for instance, may penalize non-national actors for engaging in economic activities with a sanctioned state. Such measures effectively extend the regulatory preferences of one state beyond its territorial boundaries and into the conduct of actors operating under different legal systems. Critics contend that this practice challenges established principles of jurisdiction and risks undermining the consensual foundations of international law.
The sanctions imposed upon Iran provide a notable example of these concerns. Secondary sanctions targeting foreign companies conducting business with Iran generated considerable friction between the United States and several of its allies. European governments objected to the extraterritorial effects of such measures, arguing that domestic regulatory choices were being influenced through economic pressure exerted beyond recognised jurisdictional limits.[20] The controversy illustrated how unilateral sanctions may create tensions not only between sanctioning and targeted states but also among allies operating within the same international legal order. The objections raised by the European Union to the extraterritorial application of United States sanctions against Iran, reflected in the EU Blocking Statute, demonstrate the continuing controversy surrounding the jurisdictional limits of unilateral sanctions.[21]
Beyond questions of sovereignty and jurisdiction lies a broader concern with legitimacy itself. Legality and legitimacy, although related, are not synonymous concepts. A measure may possess a degree of legal justification under domestic law while simultaneously raising doubts about fairness, accountability, or consistency within the international system. Critics of unilateral sanctions argue that enforcement mechanisms increasingly operate through structures dominated by a limited number of powerful states, thereby creating perceptions of selective enforcement. Similar conduct may attract vastly different responses depending upon geopolitical considerations, raising concerns regarding the neutrality and credibility of international governance.[22]
These concerns extend to the United Nations General Assembly, where various resolutions have expressed disapproval of unilateral coercive measures and their adverse effects on economic development and international cooperation, particularly in developing countries. Although General Assembly resolutions do not possess binding force comparable to Security Council measures, they nevertheless illustrate the continuing lack of consensus concerning the legitimacy of unilateral sanctions within the international community.[23]
Supporters of unilateral sanctions, however, contend that such criticisms overlook practical realities. The United Nations Security Council frequently encounters political deadlock, particularly where the interests of permanent members are involved. In situations where collective action proves impossible, unilateral sanctions are often presented as one of the few available mechanisms for responding to human rights abuses, acts of aggression, or threats to international peace. From this perspective, sanctions represent an imperfect but necessary instrument for addressing conduct that might otherwise go unchecked.[24]
Nevertheless, the growing dependence upon financial coercion continues to generate important legal and normative questions. The increasing ability of powerful states to influence access to global financial infrastructure blurs the distinction between collective enforcement and unilateral pressure. As sanctions become more deeply embedded within international finance, concerns about accountability, equality, and institutional legitimacy become harder to ignore. The result is not necessarily the collapse of international law, but rather a growing tension between legal principles and contemporary enforcement practices, a tension that lies at the heart of the present crisis of international legality.
MULTIPOLARITY, BRICS AND THE FUTURE OF GLOBAL FINANCIAL GOVERNANCE
The growing use of unilateral financial sanctions has accelerated broader discussions concerning the future structure of the international financial system. As sanctions increasingly operate through networks dominated by a limited number of powerful states, concerns regarding dependence on existing financial infrastructures have become more pronounced. Consequently, several emerging economies have sought to explore alternative mechanisms capable of reducing vulnerability to external economic pressure.
These developments are particularly evident within the BRICS grouping comprising Brazil, Russia, India, China, and South Africa, which has expanded in recent years to include additional member states. Although BRICS is not a unified legal or economic bloc, discussions surrounding alternative payment systems, local currency settlements, and financial cooperation reflect a broader desire to reduce reliance upon institutions and infrastructures traditionally dominated by Western powers.[25] Such initiatives have gained momentum in response to concerns that access to global financial networks may increasingly be influenced by geopolitical considerations.
The debate surrounding de-dollarisation further illustrates these developments. While the United States dollar continues to occupy a dominant position within international trade and finance, several states have sought to diversify reserve holdings and promote cross-border transactions in alternative currencies.[26] These efforts should not be understood solely as economic strategies; they also represent attempts to mitigate exposure to sanctions and reduce dependence upon financial systems that may be utilised as instruments of coercion.
From the perspective of international law, these developments raise significant questions regarding the future of multilateral governance. On one hand, alternative financial arrangements may contribute to a more diversified and resilient international economic order. On the other hand, the fragmentation of global financial networks could complicate existing mechanisms of international cooperation and enforcement. The challenge for the international community therefore lies in balancing the legitimate use of sanctions as instruments of accountability with the need to preserve fairness, predictability, and confidence in global financial governance.
Ultimately, the emergence of a more multipolar financial order reflects a broader transformation within international relations. As states increasingly seek alternatives to established financial infrastructures, debates concerning sanctions are likely to extend beyond questions of effectiveness and enter broader discussions regarding legitimacy, institutional design, and the future distribution of power within the international legal order.[27]
CONCLUSION
Economic sanctions have long occupied an important position within the international legal order as instruments intended to preserve international peace and security without resorting to the use of armed force. Traditionally grounded in the collective security framework of the United Nations Charter, sanctions were conceived as mechanisms of multilateral enforcement designed to uphold international norms while maintaining institutional legitimacy. However, contemporary sanctions differs significantly from this original conception.
The increasing weaponisation of global financial infrastructure has transformed sanctions from conventional tools of economic statecraft into highly sophisticated mechanisms of financial coercion. Through control over critical financial networks, payment systems, reserve currencies, and banking infrastructures, states occupying central positions within the global economy possess an unprecedented ability to exert influence beyond their territorial boundaries. While such measures may enhance the effectiveness of sanctions, they also generate significant legal and normative concerns relating to sovereignty, non-intervention, jurisdiction, and the equitable distribution of power within the international system.
This article has argued that the principal challenge is not the existence of sanctions themselves, but rather the growing divergence between traditional principles of international legality and contemporary sanctions practices. The increasing reliance upon unilateral and extraterritorial financial measures has created tensions between effectiveness and legitimacy, particularly where enforcement mechanisms operate outside multilateral frameworks. At the same time, the inability of international institutions to respond effectively to certain global crises continues to provide practical justification for the use of unilateral sanctions, illustrating the complexity of the issue.
The emergence of alternative financial arrangements, including initiatives associated with BRICS and broader efforts towards financial diversification, further demonstrates that the debate surrounding sanctions is inseparable from wider questions concerning the future structure of global governance. As the international system becomes increasingly multipolar, the challenge for policymakers and international institutions will be to ensure that sanctions remain effective instruments of accountability without undermining the principles of fairness, predictability, and sovereign equality that form the foundation of international law.
Ultimately, the crisis of international legality does not arise because sanctions exist, but because the mechanisms through which they are increasingly implemented have outpaced the legal and institutional frameworks designed to regulate them. The future legitimacy of economic sanctions will therefore depend not only upon their effectiveness, but also upon the ability of international law to adapt to the realities of an evolving financial order. Whether international institutions can achieve this balance remains one of the defining legal challenges of contemporary global governance.
[1] Daniel W Drezner, The Sanctions Paradox: Economic Statecraft and International Relations (Cambridge University Press 1999).
[2] Charter of the United Nations (adopted 26 June 1945, entered into force 24 October 1945) 1 UNTS XVI arts 39–42.
[3] Henry Farrell and Abraham L Newman, ‘Weaponized Interdependence: How Global Economic Networks Shape State Coercion’ (2019) 44(1) International Security 42.
[4] United Nations Security Council, ‘Sanctions: What Are Sanctions?’ https://main.un.org/securitycouncil/en/sanctions/information accessed 16 June 2026.
[5] UN Charter arts 39–42.
[6] UN Charter art 41.
[7] Kim Richard Nossal, ‘International Sanctions as International Punishment’ (1989) 43 International Organization 301.
[8] Malcolm N Shaw, International Law (9th edn, Cambridge University Press 2021).
[9] Drezner (n 1) 11–18.
[10] United Nations General Assembly, Unilateral Economic Measures as a Means of Political and Economic Coercion Against Developing Countries, UN Doc A/RES/78/135.
[11] Drezner (n 1).
[12] Farrell and Newman (n 3) 43–48.
[13] International Monetary Fund, Currency Composition of Official Foreign Exchange Reserves (COFER) https://data.imf.org/en/datasets/IMF.STA:COFER accessed 20 June 2026.
[14] Farrell and Newman (n 3) 55–61.
[15] Society for Worldwide Interbank Financial Telecommunication (SWIFT), ‘About SWIFT’ https://www.swift.com/about-us accessed 16 June 2026.
[16] Richard Nephew, The Art of Sanctions: A View from the Field (Columbia University Press 2018) 35–52.
[17] Nicolas Mulder, The Economic Weapon: The Rise of Sanctions as a Tool of Modern War (Yale University Press 2022).
[18] UN Charter art 2(1).
[19] Shaw (n 8) 733–740.
[20] Cedric Ryngaert, Jurisdiction in International Law (3rd edn, Oxford University Press 2021).
[21] Council Regulation (EC) 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom [1996] OJ L309/1 https://eur-lex.europa.eu/eli/reg/1996/2271/oj/eng accessed 16 June 2026.
[22] Nossal (n 7) 301–308.
[23] UNGA Res A/RES/78/135 (n 10).
[24] Drezner (n 1).
[25] BRICS, Kazan Declaration (16th BRICS Summit, Kazan, Russian Federation, 23 October 2024).
[26] IMF, ‘Currency Composition of Official Foreign Exchange Reserves (COFER)’ (n 13).
[27] Mulder (n 17).