EditThe sanctions boomerang: what Europe isn’t measuring
Sanctions hit hard - but they also trigger adaptation. And in a tightly wired global economy, some of that pressure loops back on the senders
Europe has made Russia’s access to Western finance tougher. It has also made alternatives to Western finance more valuable. That doesn’t mean sanctions failed. It means Europe may be counting only half the story, writes Amir Naser Hojati.
Amir Naser Hojati is a futures trader, fintech entrepreneur, and financial-market writer focused on risk, geopolitics, market structure, and European economic policy.
Sanctions are usually judged by what they stop: assets frozen, transactions blocked, exports banned, revenues squeezed. But economic pressure also reshapes incentives. Trade reroutes. New middlemen appear. Payment systems evolve. Governments hunt for substitutes. Costs can travel back along the same networks used to deliver the pressure.
Europe needs an “adaptation audit” alongside its major sanctions regimes: not just a snapshot of today’s pain, but a read on the behavior and infrastructure sanctions encourage tomorrow.
More than four years after Russia’s full-scale invasion of Ukraine, roughly €210 billion in Russian central-bank assets remain immobilised in the EU, while EU–Russia goods trade fell from €257.5 billion in 2021 to €58.1 billion in 2025. Those are real effects. But the surrounding economic system has changed too.
Sanctions work. Markets adapt
A sanctioned product reaching Russia doesn’t automatically mean the sanction failed. If a company can source a component only at a higher price, through more middlemen and with longer lead times, the restriction is still doing work.
But friction changes incentives. Research from the European Bank for Reconstruction and Development (EBRD) found that after sanctions expanded in 2022, direct EU exports to Russia dropped sharply while exports to Armenia and Central Asia rose. The fall in direct EU exports was about 80% steeper for sanctioned goods than for other products, while exports of sanctioned goods to those three economies jumped disproportionately.
That’s trade diversion. It doesn’t prove every shipment through a neighbour is evasion. It does show that closing one channel can raise the value of another. Over time, temporary diversion can harden into new habits that stick – new suppliers, intermediaries, substitutes and settlement channels.
A sanction can keep hurting the target while quietly teaching it how to operate with less dependence on the very system imposing it.
The paradox of financial power
Western sanctions bite because Western institutions sit at the center of global finance. The dollar and euro still dominate. Western banks, insurers and maritime-service firms are woven into cross-border commerce.
That creates leverage. It also creates a paradox: the more powerful exclusion becomes, the stronger the incentive to build alternatives to the system doing the excluding.
Russia has pushed its SPFS financial-messaging system and broader use of national currencies. The EU has responded by barring EU entities from connecting to SPFS and restricting third-country financial institutions that use it. In 2026, the ECB also flagged A7A5, a rouble-linked stablecoin designed to help move money in and out of Russia under sanctions.
None of these alternatives rivals the depth or credibility of the Western financial system. They don’t have to. Their strategic value lies in becoming more usable than before. Financial centrality gives sanctions their punch; policies that nudge others to hedge against that centrality can, over time, dull future leverage.
Pressure doesn’t travel in one direction
Sanctions research has long acknowledged “sender costs” – the economic and political burdens borne by countries imposing restrictions. Europe’s post‑2022 energy shock had multiple causes: Russia’s invasion, supply cuts, market uncertainty and Europe’s own decision to wean itself off Russian energy. Sanctions alone don’t explain the strain.
But the economic consequences didn’t flow in one direction. The ECB estimated that the deterioration in the euro area’s energy terms of trade produced a cumulative loss equivalent to 2.4 percentage points of GDP between Q3 2021 and Q3 2022.
European governments cushioned households and firms with subsidies and other measures. European Commission figures put crisis-related energy subsidies at an estimated €187 billion in 2022 and €145 billion in 2023. Using Eurostat population data, that’s roughly €742 per EU resident across the two years. It’s not a literal tax bill and shouldn’t be pinned on sanctions alone; it’s a per‑capita public‑budget equivalent of the wider energy shock and policy response.
Distribution matters too. The ECB found that the lowest‑income households spent around 12% of disposable income on electricity, gas and heating, compared with 4% for the top income quintile, and suffered proportionately larger purchasing‑power losses. The decision to impose economic pressure is collective; the adjustment is often individual.
Any serious sanctions assessment should ask: who is being targeted, and who is actually paying?
Adaptation made physical
Russian oil offers a visible example. Restrictions didn’t eliminate the need to move it; they raised the value of shipping and service networks that can operate outside conventional Western channels. The European Commission says the EU has listed hundreds of vessels tied to Russia’s “shadow fleet.”
Economic activity can disappear, become more expensive or move. Measuring only what disappeared risks overlooking the infrastructure created to replace it.
When legal exemptions fail in the real world
Iran shows another unintended consequence. Medicines and humanitarian goods have generally been exempt, but medicine doesn’t move internationally just because a regulation says it can. Banks must process payments, foreign currency must be available, and suppliers must accept compliance risk.
That breeds overcompliance, or de‑risking. Human Rights Watch documented how fear of secondary sanctions deterred international banks and companies – including European institutions – from permitted humanitarian trade with Iran. A systematic review of 24 studies also found serious medicine‑access problems among Iranian patients.
Sanctions don’t explain every shortage in Iran; domestic management, corruption and procurement failures matter too. But a transaction can be legally exempt yet economically impossible if the infrastructure needed to execute it doesn’t function reliably. Humanitarian exemptions should be measured by whether they work in practice, not just by whether they exist on paper.
From adaptation to a splitting world economy
The longer‑run worry is the world splitting into rival economic blocs. The IMF has warned that Europe’s highly open economy is exposed through trade, financial flows, technology and energy. Severe fragmentation scenarios aren’t forecasts of today’s Russia sanctions, but they show why the direction matters: rival economic blocs can generate persistent losses as trade, finance and technology become less efficient.
For Europe, the strategic paradox is clear. Integration into the international financial system gives it coercive power today. But if repeated use of that power encourages governments and companies to build parallel systems and reduce dependence on Western intermediaries, part of the infrastructure underpinning that leverage can slowly erode.
Five questions for smarter sanctions
Europe doesn’t automatically need weaker sanctions or stronger ones. It needs better measurement. Every major sanctions package should face five questions:
- Effectiveness. Is it advancing the political or strategic objective it was imposed for, rather than merely generating measurable economic pain?
- Adaptation. Which suppliers, intermediaries, shipping routes, technologies and payment channels are replacing those being restricted?
- Blowback. What economic, fiscal and distributional costs are returning to European households, businesses and governments?
- Humanitarian functionality. Do legal exemptions work in practice, or have financial and compliance barriers made permitted transactions inaccessible?
- Fragmentation. Is the measure encouraging financial and commercial infrastructure that could reduce European leverage in the future?
Europe should ask not simply whether sanctions impose pain, but whether the leverage they buy justifies the adaptation, costs and competing networks they leave behind.
Sanctions should be judged not only by what they stop, but by what the economic system builds in response.
Caption: A woman (R) waits to finish filling her car at a gas station in Bucharest, Romania, 3 August 2026. Romania now leads the EU in high diesel costs, with pump prices rising by 7.5% in the last seven days. EPA/ROBERT GHEMENT
Updated: September 7, 2026 - 08:14
