The sanctions imposed against Russia after its full-scale invasion of Ukraine in 2022 are not universal—rather, they were adopted and are being enforced by a “coalition of the willing.” This reality has important implications for both their implementation and effectiveness, as countries outside this coalition actively participate in circumvention efforts.
Extraterritorial measures have proven highly effective in enforcing the Russia sanctions in third countries, particularly regarding the shadow fleet and export controls. However, since only the US wields the instrument of secondary sanctions, its potential withdrawal from the “sanctions coalition” poses a serious challenge to the remaining allies of Ukraine.
The regime of sanctions imposed on Russia following its full-scale invasion of Ukraine in February 2022 may be one of the most comprehensive in history. It also may target a larger and more integrated economy than any sanctions regime that came before. But fundamentally, it has been imposed by a “coalition of the willing,” and not through a multilateral legal framework, e.g., the United Nations Security Council. This makes a significant difference for the regime’s implementation and enforcement—and, ultimately, its effectiveness. The countries of the “sanctions coalition” account for ~60% (roughly $65 trillion) of global GDP but only ~15% (~1.15 billion) of the world’s population. Importantly, many key emerging markets do not partake in the sanctions regime—including the largest 10 by GDP—and some play an active role in supporting Russia’s circumvention efforts.
Third-Country Circumvention and Enforcement Challenges
Circumvention of the Russia sanctions through third countries has—unsurprisingly—emerged within a variety of key areas, including energy, war-critical goods, and finance. These examples help us understand the broader challenge facing sanctions imposed by a limited coalition of countries.
As far as energy sanctions are concerned, most of Ukraine’s allies have imposed comprehensive import bans on Russian oil, natural gas, and coal with the objective of reducing Russia’s export earnings and budget revenues. While numerous exemptions exist, these measures affect a large share of pre-2022 energy exports. This analysis focuses specifically on oil because it faces more comprehensive sanctions compared to natural gas, contributes significantly more to Russian export earnings than gas or coal, and has more detailed data available on developments following February 2022. In 2021, Russia exported crude oil and petroleum products worth $181 billion, with sanctions coalition countries accounting for 61.8%. By 2024, these countries had reduced their imports of Russian oil by 92% in volume terms compared to January-February 2022. However, at the same time, imports by non-coalition countries—including China, India, and Türkiye—rose by 111%, almost completely offsetting the impact of sanctions.
As this did not come as a surprise, the G7, together with a number of other countries, created the so-called “oil price cap” in order to reduce Russian export prices while maintaining the supply of its oil to the global market. The price cap mandates that seaborne oil exports (which make up 75-80% of Russia’s oil exports) with the participation of service providers from G7+ countries—ship owners and managers, insurance companies, flag registries, etc.—must occur at or below the established price cap. But, as many countries do not participate in the price cap regime, service providers from outside the G7+ quickly took over. The result is the buildup of the “shadow fleet”—a separate fleet of tankers allowing Russia to evade these restrictions. By the second half of 2024, it had been transporting more than 80% of Russia’s seaborne crude oil exports, thereby seriously undermining the price cap’s leverage. According to some estimates, the shadow fleet generated additional earnings of ~$10 billion from crude oil in 2024 alone.
The challenge of a non-universal sanctions regime has also become apparent with regard to export controls. Restrictions on the sale of war-critical items are key to reducing Russia’s capacity to wage its war of aggression in Ukraine, and most countries of the coalition imposed them in the immediate aftermath of the full-scale invasion. However, research shows that these measures are circumvented to a significant degree and that certain third countries play a critical role in these efforts. In 2023, Russia was able to import $12.5 billion of so-called “common high-priority” (or CHP) items—including microchips, communications and navigational equipment, and precision machinery—which is only ~2% less than in 2021. While there is some evidence that Russia is forced to pay significant markups for export-controlled goods acquired through third countries, meaning the decline in volume terms is more pronounced than what trade values indicate, the implementation and enforcement of export controls appear to be facing major challenges. A small number of third countries play a critical role in Russia’s circumvention networks. While shipments from coalition countries declined from 52% of the total in 2021 to 6% in 2023, those from China, Türkiye, and the UAE increased from 37% to 60%. In fact, 90% of all Russian CHP imports in 2023 were in some way facilitated by China: 49% consist of items produced by Chinese companies, 18% of items that were produced elsewhere and transshipped via China, and 16% of items manufactured by coalition-based companies in China.
As money is the most fungible of all sanctioned items, it is no surprise that third-country circumvention also plays a major role in the effectiveness of financial sanctions. Despite the fact that a sizeable number of large Russian banks have been sanctioned by the US, EU, UK, and others—and that many of them were disconnected from the SWIFT financial messaging system—the Russian banking system did not encounter any systemic crisis. It continues to be able to facilitate cross-border transactions, albeit probably at higher costs. The reason is partially that some banks were left out of the sanctions regime for quite some time—and some remain unsanctioned—but, more fundamentally, these institutions are now simply conducting their international business through financial centres located in jurisdictions outside of the sanctions coalition: Dubai, Hong Kong, Singapore, etc.
Extraterritorial Sanctions Application
That sanctions are being circumvented, relying on jurisdictions that do not participate in them, is neither surprising nor a novel development. However, the Russian case demonstrates to what extent extraterritorial sanctions remain an extremely powerful instrument to address this challenge. Here, two case studies illustrate this point: the coalition’s efforts to rein in the aforementioned shadow fleet and the steps taken to enforce export controls by targeting entities in countries outside of the coalition.
Case Study 1: Reining in the Shadow Fleet
Initially, coalition authorities targeted companies involved in the shadow fleet’s operations. However, this quickly turned out to be rather ineffective as ships were transferred to new operators—basically overnight—and continued their operations without any significant interruptions. Therefore, the strategy shifted sanctioning (‘designating’) individual shadow tankers—ships without any links to G7+ service providers. Since late 2023, the US, EU, UK, and, more recently, Canada, have sanctioned more than 300. Many of them, especially those designated by the US Treasury Department (specifically OFAC), have been removed from commercial operations because any entity interacting with an OFAC-listed ship—or the cargo that it carries—risks becoming the target of enforcement action itself, including losing access to the US financial system and the US dollar. Most of them—refineries, port authorities, and banks—have chosen to avoid these risks.
Vessel designations by the EU and UK appear to be somewhat less impactful. This makes sense considering the fact that neither of these jurisdictions imposes so-called secondary sanctions, i.e., measures that apply to third parties simply because of interactions with a sanctioned entity. This is not to say that the EU or UK do not have leverage here—for instance, they could deny access to their respective markets—but the US’ ability to issue vague threats, prompting entities to self-enforce compliance to avoid crossing unclear red lines, remains notably more powerful.
Case Study 2: Enforcing Export Controls
The United States is wielding the secondary sanctions threat carefully as its (over-)use will incentivise actors around the world to move away from the US dollar and US financial system. However, it did rely on it in the area of export controls when it became clear that Russia had maintained access to critical inputs for its military industry, including from US manufacturers. In December 2023, then-President Biden signed Executive Order 14114, which threatens foreign financial institutions involved in Russian imports of export-controlled goods with secondary sanctions. While data limitations make it difficult to assess the overall impact, media reporting indicates that banks in many countries that do not support the sanctions regime against Russia—i.e., China, Türkiye, the UAE—have become hesitant to facilitate any transactions that may expose them to enforcement action by OFAC. Crucially, this is the case despite the fact that OFAC has not undertaken any such actions, at least as far as is publicly known. Again, it is the vague nature of the secondary sanctions threat that makes these measures so effective. As a result, prices for Russia have risen dramatically, delays have grown, and the quality of the items in question has been compromised.
While the EU does not impose extraterritorial measures out of principle, instruments have been developed that may have a similar effect. For instance, the EU created mechanisms to sanction third-country intermediaries and foreign banks involved in the trade with war-critical goods (in its 11th and 16th sanctions packages, respectively). However, as taking such steps requires meeting high evidentiary thresholds—and, importantly, requires unanimity in the Council—the deterring effect is not as strong as that of secondary sanctions.
The Looming Challenge: What Do We Do Without the United States?
While these examples show the remarkable impact of the extraterritorial application of sanctions, they also highlight a specific challenge: How can the effectiveness of the Russia sanctions regime be preserved if the United States decides to unilaterally lift some of its measures or simply stops enforcing them? In many areas of the Russia sanctions, Europe is clearly in the driver’s seat. European countries were previously the main buyers of Russian energy, and they can independently refuse to resume purchases of Russian oil and gas regardless of US government policy. European countries (along with Australia and Japan) also hold the overwhelming share (likely more than 75%) of the Russian sovereign assets that were immobilised in early 2022, and they can independently choose not to return them, regardless of whether the US unfreezes assets under its jurisdiction. However, in areas where US extraterritorial enforcement efforts play a key role, it will be quite challenging to offset any backtracking by the US.
European countries will likely face a more confrontational US government for the foreseeable future—not only with respect to Russia, but also regarding trade relations, burden sharing within NATO, competition in the area of artificial intelligence, and so on. It is, therefore, imperative and urgent to develop tools that enable Europe to effectively project its economic power and protect the rules-based international order upon which its economic prosperity and security depend.
This article was written for the Lennart Meri Conference special issue of ICDS Diplomaatia magazine. Views expressed in ICDS publications are those of the author(s).