What does sanction security mean for states and companies?

Today, international relations are witnessing the evolution of the Atlantic order established in the post-Cold War era into a new structure. This transformation leads to new concepts and changes in the parameters of defining power and updating the concept of security. Geopolitics, which is influenced by different elements of power, is also continuously transforming and taking new forms in this context. In the past, geopolitical influence was primarily shaped by military, economic, and political power. However, today, it is shaped by more complex and multilateral factors that cannot be controlled by a single state. Therefore, it is necessary to evaluate the changing dynamics of international relations through non-state factors rather than solely focusing on the increasing or decreasing power of states in the system.

Technological advancements and the global economy

Factors such as the gradual breaking of technological monopolies, enhancing know-how information around the world, the formation of commercial corridors through expanded sea-land-rail transport, the widespread availability of telecommunication tools, and increased awareness of organization and freedom of information in social media constitute the main dynamics of the process we face today. Recent technological advancements and engineering innovations have facilitated swifter travel across vast distances, resulting in heightened commercial activity. Consequently, entrepreneurs and states situated across the globe now enjoy access to an expansive market.

The role of economic sanctions in modern geopolitics

Since the 2000s, this escalating commercial mobility has been counterbalanced with a contrasting dynamic within the prevailing geopolitical landscape. The emergence of this new dynamic, initiated by the frequent implementation of economic sanctions, has concurrently spawned its own antithesis and unveiled a concept we shall term “Sanctions Security”. In essence, sanction security encompasses a series of endeavors undertaken by states, corporations, IGOs, NGOs, and even individuals to forge alternative relationships, construct counterarguments, enhance deterrence, strengthen brinkmanship capability, establish new supply chains, and procure legal safeguards to navigate this evolving phenomenon.

The impact of sanctions: Ukraine, Russia, and Beyond

Although sanction security has been a significant factor in international relations for some time, its prominence has increased notably in the aftermath of the conflict between Ukraine and Russia. It is evident that sanctions directly impact trade and create a robust connection between geopolitics and security. For instance, ensuring the secure delivery of natural gas or oil from one country to another now necessitates not only the assurance of demand-supply-route security but also sanctions compliance. The Europe-Russia energy relationship serves as a prime illustration of this phenomenon. Despite having established security measures for demand, supply, and transportation routes, commercial relations remain stymied by sanctions.

The effectiveness of economic sanctions

In recent times, economic instruments have supplanted direct military conflicts stemming from geopolitical rivalries and states’ strategies to access resources, largely due to the escalating costs associated with military interventions. Sanctions have gradually emerged as a pivotal tool of economic statecraft for states. The United States, as the primary arbiter of the global trade and finance system, stands out as the foremost proponent and wielder of this tool. However, the effectiveness of these sanctions remains debatable. Western sanctions against Iran, for example, have failed to deter Iran from pursuing its nuclear program. Similarly, Western sanctions imposed on Russia since 2008 have not prompted a change in Russia’s interventionist policies.

Russia’s strategy against economic sanctions

Russia, which started to rise economically, politically, and militarily after Vladimir Putin came to power in the early 2000s, has turned towards the former Soviet geographies in its periphery in line with its near abroad doctrine. The 2008 intervention in Georgia and the 2014 interventions in Crimea are the most concrete examples of this and had regional consequences. However, the intervention in Ukraine, which started on 24 February 2022, had a global impact both with regards to its scale and impact, and started a geopolitical struggle.

The Atlantic Alliance’s response to Russia

The most concrete reflex of the Atlantic alliance against Russia’s military intervention in Ukraine was to impose economic sanctions, which were believed to provide deterrence. As a matter of fact, before 24 February, many people thought that economic sanctions would force Russia into a corner, economically collapse it, and thus the war would be concluded in a short time. However, war can have unpredictable consequences in many respects. At this point, it is worth recalling the words of Helmuth von Moltke, former Chief of the General Staff of Germany, who once said, “No war plan survives contact with the enemy. War has the ability to produce results on all rules and processes.”

Russia’s response: adapting to sanctions

So what were the strategy and backup plans of Russia, which developed sanctions security against the West, which adopted a sanctions strategy? First of all, it should be noted that any decision to impose economic sanctions has a bilateral impact, affecting not only the embargoed country but also the sanctioning countries. Especially when that country is Russia, it is clear that the effects will be experienced on a global scale. With the outbreak of the war, Moscow’s clearest response to the West was to turn to alternative markets, use the discount strategy, and set up export operations from different countries.

Russia’s new market strategies

For example, at the beginning of the war, Russia offered discounts on oil sales to India, a major oil importer, and gained an important market there. During the same period, Russia also increased its exports of oil and derivatives to China, compensating for the loss of the European market with other regions. Moscow is not only neutralizing economic sanctions by creating new markets and direct sales but is also trading through intermediary countries. For example, Russia, unable to sell refined petroleum products directly to Europe, managed to do so through India. The United Arab Emirates (UAE), a BRICS+ member, is another country that has opened its doors to Russian investors.

The impact of sanctions on Europe and Russia’s flexibility

Russia’s flexibility and readiness for sanctions ensured that the consequences of sanctions worked against Europe. European companies, which for many years had benefited from cheap Russian energy, have lost this advantage. In addition, rising inflation in EU countries has led to large-scale protests. In short, economic sanctions force countries to look for a way out and can end up benefiting the embargoed country over time.

Russia’s geopolitical strategies and global south focus

Russia has also developed strategies to counteract the sanctions imposed on it in the geopolitical arena. Russia has serious allies, both before and during the war, which either have the power to resist imposing these sanctions or are unaffected by them due to their own exclusion from the West. This is why, after the outbreak of the war, Russia systematically shifted its focus toward the Global South, not only economically but also culturally, diplomatically, and militarily.

Russia’s ideological polarization and new alliances

In February 2024, Moscow hosted the first ‘For the Freedom of Nations’ forum with 400 delegates from 60 countries. Russia has initiated an ideological polarization against the West, which has long sought to exclude Moscow geopolitically in international relations as well. Moscow seeks power and legitimacy by positioning itself as the pole of anti-Western ideology in the new Great Game.

The broader impact of sanctions on global relations

Beyond the direct impact on Russia and the EU, it can be argued that economic sanctions have had positive effects on third-party countries. For example, Western sanctions against Russia have strengthened Russia’s economic ties with China and pushed Moscow into Beijing’s embrace. Similarly, Russia’s energy embargo on Europe has prompted increased cooperation between Europe and American LNG companies. On another front, China’s tensions with Taiwan have increased Taiwan’s search for cooperation with states such as India and Japan.

The private sector’s response to geopolitical turbulence

In a world where states impose economic sanctions on one another, it is small and medium-sized enterprises, along with international companies, that bear the brunt of these actions. Companies are now establishing sanctions compliance units within their organizations or enlisting the services of consultancies to aid them in safeguarding against sanctions regimes, maintaining their business relationships on a legal basis, and avoiding being banned from doing business.

The importance of geopolitical strategic intelligence for companies

Companies should be evaluated not only on their financial performance but also on their geopolitical strategic intelligence. The use of trade as a tool of enforcement and the implementation of sanctions regimes are the new phenomena of our time. Resilient companies with self-efficacy, flexibility, and alternative operational strategies have a greater chance of weathering the geopolitical storm.

Adapting to a new era of geopolitics

In the current business environment, whether it’s a small or international company, it’s crucial to monitor geopolitical developments and respond accordingly. The world has entered a new era where past rules no longer apply; traditional alliances are shifting, emerging regions are gaining significance, new commercial routes are being established, and existing ones are becoming unstable. Thus, companies must adapt to the mindsets of states and develop reflexes to reshape their organizations. States should also assess the repercussions of their decisions on companies, analyze their macroeconomic ramifications, and base their economic sanction decisions within this comprehensive framework.