Political Instrument

1. The American Government had frozen all Iranian assets in the US when the Iranians took hostage of American citizens in the US embassy in Teheran. After negotiations, The Americans released the frozen assets and in return the Iranians released the hostage.
2. The UN economic embargo against Iraq for the Kuwait invasion has prevented Iraq from exporting its oil unless it submits to various UN requirements. It managed to force the Iraq government to submit partially, when hunger and malnutrition threatened its population. Iraq is now allowed to export its oil for the purpose of buying food, medicine and humanitarian goods.
3. Economic Persuasion. Persuasively, economic rewards or advantages are offered for satisfactory modification of behavior. Rewards may also be used to maintain favorable behavior. Aids in the form of outright financial grants, favorable loans and development assistance for economic development and other purpose such as military and defence support are extended in return of favorable domestic or foreign policy of target states. Use of other economic techniques such as lowering tariffs, increasing quotas, stabilizing currency rates, granting of import or export licenses and bilateral or multilateral trade agreements can also be used persuade target nation for political cooperation.
4. During the cold war, Yugoslavia was accorded the lowest tariff rates from the US Government for its independence from Moscow. In relation the Soviet threatened to organize embargo and boycott against Yugoslavia being dependent to the Communist block for over 50% of its export and 90% of its import, Yugoslavia was practically vulnerable to economic punishment. However, its ability to turn to the European countries and the US for alternative source and markets had lessen the impact.

Effectiveness

It has been argued that the effectiveness of economic instrument depends on the economic relation between a nation and its target. Therefore a nation which rely heavily on a single nation for its economic activities will be vulnerable. However the dependence to a single nation has declined as more and more nations become develop and are able to provide alternatives to needing nations. Besides over-dependency, economic coercion may be effective with the following conditions:

1. Target nation cannot readily find alternatives resources or markets.
2. There are relatively unstable political situations in the target nation where the direct economic impact on the population may pressure the government into giving in.
3. There is little sympathy for the target nation.
4. Other instruments such as diplomacy and military pressure are used to supplement economic measures.

The economy of the target nation is relatively weak

The results of economic persuasion or rewards are unpredictable. Its effect is over a long period. Since it may be perceived as economic bribery, possible humiliation and status degrading may result in worsening of relations. As in the case of Yugoslavia, the granting of loans, writing off debts and favourable economic relations by the Soviets did not stop the Yugoslavian government from adopting independent communist ideology. This was due to the ability of Yugoslavia to find alternative source of supply and markets. Therefore, persuasive economic technique could only be effective if target nations are completely at the mercy of the dominant states extending the aids. Other instruments such as diplomacy and propaganda may also contribute to their effectiveness.