PEACE Act Mandates Sanctions on Azerbaijan Officials and Foreign Banks if Hostilities Erupt

The new Preventing Escalation and Advancing Caucasus Engagement Act, or the PEACE Act, is the U.S. government’s attempt to put some teeth into its diplomacy between Armenia and Azerbaijan. The bill starts by laying out a clear U.S. policy: we support the sovereignty and borders of both countries and want them to negotiate a lasting peace. That’s the diplomatic goal, but the real meat of this bill is the mandatory, hard-hitting sanctions it triggers if Azerbaijan decides to use military force against Armenia.

The Sanctions Tripwire: What Triggers the Punishment

This isn't just a strongly worded letter. The entire sanctions regime hinges on one person: the President. If the President determines that Azerbaijan has engaged in “hostile actions” against Armenia, they must immediately inform Congress. Once that certification is made, the sanctions are mandatory, not optional. The bill defines “hostile action” broadly, covering military aggression that causes significant loss of life, damages key infrastructure, or seriously violates Armenia’s borders (Sec. 3).

Who gets hit? High-ranking Azerbaijani officials involved in the aggression, the military units and civilian agencies that participated, and any foreign person or entity that “knowingly” helped them carry out the hostile actions (Sec. 4(a)). For those individuals, the U.S. government must freeze all their assets in the U.S. and immediately revoke any U.S. visas they or their immediate family members hold. If you’re a sanctioned official, your ability to travel to or transact in the U.S. vanishes instantly.

The Oil Trade Pinch: Foreign Banks Get Put on Notice

Sanctions also extend to the global financial system, specifically targeting Azerbaijan’s main revenue stream: oil. Sixty days after the President certifies hostile actions, the U.S. Treasury must start restricting foreign banks that knowingly handle significant financial transactions with sanctioned Azerbaijani banks involved in the oil or petroleum trade (Sec. 4(d)).

This means if a bank in Frankfurt or Dubai continues to process major payments for Azerbaijani oil exports with sanctioned entities, the U.S. can effectively cut them off from the U.S. financial system by prohibiting them from opening or maintaining correspondent accounts here. This is a massive compliance headache for international finance, forcing foreign banks to choose between dealing with sanctioned Azerbaijani oil trade or dealing with the U.S. dollar.

Humanitarian Exemptions and the Presidential Backdoor

Recognizing the need to avoid punishing ordinary citizens, the bill includes crucial exemptions. Sanctions cannot apply to transactions involving the sale of agricultural goods, food, medicine, or medical devices to Azerbaijan, or for humanitarian aid (Sec. 4(d)(4) and Sec. 5(b)). This is a necessary firewall to ensure that the sanctions focus on military and political leadership, not on starving the population.

However, the bill also gives the President a massive amount of discretion. While the sanctions are mandatory once triggered, the President can waive them for any person if they determine that doing so is in the “national interest of the United States” (Sec. 5(c)). This is the ultimate policy escape hatch. It means the President could impose sanctions on Monday, decide they are complicating other diplomatic goals on Tuesday, and waive them on Wednesday, simply by reporting the decision to Congress.

The Long Game: Sunset and Oversight

This entire framework isn’t permanent. The PEACE Act includes a seven-year sunset clause (Sec. 8). All the rules, sanctions, and reporting requirements automatically expire seven years after the bill is signed into law, unless Congress explicitly renews it. This suggests the bill is intended as a temporary, high-pressure tool to force a resolution, not a permanent fixture of U.S. foreign policy.

Finally, the President is required to report to Congress every 90 days on whether Azerbaijan has engaged in hostile actions against Armenia (Sec. 7). This ensures continuous, high-level political attention on the situation. If sanctions are imposed, the President must conduct an annual review of their effectiveness. The PEACE Act is essentially a clear warning shot: if the conflict escalates, the U.S. has a pre-approved, mandatory sanctions package ready to deploy, though the President retains the power to pull the plug at any time.