A Look into the Sanctions Crystal Ball

It’s always tough to look into the policy crystal ball… all the more so with the incoming administration. But here’s an attempt on the sanctions side to map recent trends. What are you watching?

With the Trump administration set to take office soon, there are many questions about the evolution of financial sanctions policies and enforcement, how sanctions will be used alongside or replaced by other tools including tariffs and export controls, and how they will be integrated into strategy if at all. This piece tries to touch on some of the important evolving sanctions regimes especially those where policies or at least enforcement might shift. I try to summarize the current state of play and recent US policy moves as well as what we now know about broader policy direction from Trump and potential administration officials. As we have learned in the Biden administration, its difficult to sanction many large economies at the same time, especially major resource producers, meaning policy tradeoffs abound. I anticipate being busy writing about these tradeoffs in the days and months to come as global trade and investment flows continue to be reshaped. 

Personel matters. This week brings confirmation hearings for key cabinet members involved in sanctions policy including Secretaries of State (Rubio) and Treasury (Bessent). As yet, few of the primarily sanctions posts have been announced at Treasury and Commerce however. This is not atypical at this phase in the transition of course, but given the sheer number of officials named, it seems notable. Even though Trump himself will play a key role, who takes on these roles will be key for the critical details so relevant to the impact on business. 

Iran: Max Pressure 2.0? 

Current state of play: Since October of 2024, the Biden administration stepped up sanctions pressure on Iranian oil, sanctioning a wider range of tankers involved in the shadow fleet. These measures extended more targeted moves that began after October 7 2023. The latter moves designated tankers and shipping networks associated with cargos traded to benefit Iranian regional partners such as Hamas, Hezbollah and the Houthis, which seemed to be mostly absorbed by the market. The more recent moves, including a new round of vessel sanctions in December, seem to have had a moderate impact on reducing Iranian volumes and perhaps a greater impact on reducing revenues. On net Iranian export volumes have fallen by a few hundred thousand barrels a day since peaking in mid-2024. These measures have also kept China the primary buyer of Iranian crude at a discount and kept large Chinese refiners away from the trade. Notably, extensive prior sanctions leave Iran operating effective barter trade where imports are a challenge. 

What might come next? The incoming Trump administration has pledged to put more pressure on Iran including a new Maximum Pressure campaign that could include new sanctions and other economic and military pressure. The development of an extensive web of illicit financial and shipping networks will make it difficult to do so. Putting meaningful pressure on Iranian earnings would require blunter measures than in 2018/19 as less of the trade transit US/G7 financial/shipping markets. Implementing max pressure 2.0 would require pressure on Chinese buyers including ports and also intermediaries in other countries (Malaysia, UAE among them). Iraq too would likely face pressure in this new phase as its entities have been heavily involved in smuggling. Moreover Iraq has also failed to build its own natural gas or power networks sufficient to provide local power. The Trump administration and allies in Congress will likely make past payment exemptions more difficult to achieve. 

Uncertainties include how sanctions will interact with other policies including military pressure. The US is unlikely to use military force directly but it may give space to Israel. Another critical uncertainty on Iran policy will come from the interests/lobbying of Saudi Arabia, and GCC states. These countries have found some ways to live with Iran and try to reduce the Islamic Republic’s threats to domestic security. They have worried about a return of tanker wars and indirect escalation. 

China: Shifting Tools? 

State of Play: The Biden Administration announced several more rounds of export controls in its waning days including on export of semiconductors for AI (big deal) as well as designating more Chinese companies for their government links (more symbolic for now). They also finalized new rules on the ban on connected vehicle systems. In recent years, the powerful economic tools wielded on China by the US have been export controls on technology access, while smaller companies faced financial sanctions and export controls for their support of Russian, Iranian and other adversary supply chains.  Larger Chinese entities (banks and businesses tried to insulate themselves from retaliation. Meanwhile, China engaged in more mirroring policies, extending export controls on the sectors in which they are dominant – critical minerals, battery technology and related sectors. China has no interest in making it easy for the US and allies to make it easy to reduce China’s role in the supply chain. 

Going forward, the Trump administration may shift within their coercive economic toolkit on China policy, potentially using tariffs more than other tools such as sanctions and export controls. Trump and staffers have pledged to impose tariffs on China, but the scope  and level of tariffs remains uncertain. With Tariffs being used for macro/trade goals (protection), non-economic/non-trade goals and potentially revenue generation, tariff rates could increase significantly. China policy (and that on Russia) will be a key test of whether Trump actually prefers tariffs to sanctions. Tariffs increase the cost to American consumers and if applied primarily to one trading partner, could cause significant diversions in trade as cheaper Chinese goods a) benefit from mispricings/oversupply in China and b) look for new markets. The security focus of Trump’s team suggests that many export controls on technology, connected vehicles, drones and outbound investment screening are likely to remain intact. Similarly coercive tools will likely be used to try to further reduce fentanyl trade, a theme that dominated Biden Admin sanctions on Chinese entities or late. 

Russia: Tough Talk, Weaker enforcement? 

State of Play: On 10 January, the Biden Administration announced a long-awaited large package of sanctions and restrictions on Russia and its energy sector including sanctions on 180 tankers, as well as Russian insurance, shipping and some energy companies. The coordinated designations on tankers adding up to about 30-50% of the ‘shadow fleet’ carrying Russian fuel, as well as companies supplying or involved in a large minority of fuel suggests that workarounds will be difficult and costly in the short-term. Big buyers China and India are restricting US designated vessels from entering their ports (though they are less wary of UK and EU designations due to less enforcement heft). Some ship-to-ship transfers are likely, but payment will be difficult, meaning global benchmark prices will likely increase and Russian discounts grow. Restrictions on military procurement networks remain difficult to enforce and export controls are leaky, but these measures should reduce Russian revenue in the short-term while boosting global prices. 

As for likely impact, a likely cut to Russian revenues will hurt and add to price pressures in Russia, but also globally. The oil market impact will depend also on the response of Russia’s OPEC partners, who may pick up some market share in the short-term. Notably, they have been focused on keeping Russia in the OPEC+ fold and have been critical of US/G7 efforts to reshape oil markets and the dangers that come of the shadow fleet. Russian domestic imbalances are growing including higher subsidized credit, but Russia is still talking tough and trying to wait out the Ukrainians and their western allies.

What could change: Some of Trump’s foreign policy team (Walz, Kellogg) have talked tougher in recent weeks, threatening more oil sanctions (and the possible abandonment of the price cap) as well as more weapons sales to Ukraine if Russia does not quickly come to the table. Trump’s own policy preferences remain unclear. He desires an end to fighting, will not like the increase in global oil prices and believes sanctions have undermined US interests. While actual sanctions relief (suspension or removal) would be subject to a more lasting ceasefire, a Trump administration might be less focused on enforcement – more importantly, it might be less focused on coordinating with the G7 to disrupt Russia’s supply chains even as sanctions formally remain in place. Enforcement gaps, and divergent focus in the US interagency process might lead to policy divergence that are more confusing to business. Such legal landmines may be more problematic to G7 businesses than EM counterparts, but it is smaller companies in the Emerging world that may continue to navigate the morass of legal exposures. Many sanctions might remain in place for a long period of time, especially those on Russian military and on Russia links with China, North Korea and Iran. 

Venezuela: Which way out of the Limbo? 

State of Play: Since the partial sanctions relief and partial sanctions return ahead of the elections failed (see longer piece here), US policy has been in limbo (see here for recent take). US and some allies have imposed individual sanctions on officials in the government and military but they have maintained the all important energy licenses that keep oil flowing and modestly edging up. The current stasis benefits players already present in Venezuela but new investment is effectively off the table. 

Trump and surrogates have had little to say on Venezuela of late, reflecting the lack of good options. Incoming team at the state Department seems hawkish, but Trump himself might be amenable for an oil for accepting migrants deal, especially if he holds to his goal of sizeable tariffs on Canada which produces a blend of heavy oil more akin to Venezuelan crudes. Maximum pressure 2.0 seems unlikely but an American first policy could focus on reducing licenses for non-Americans. Overall energy focus is likely to be more focused on domestic production not US-IOC production abroad. 

Syria: Sanctions Relief? 

State of Play: last week, the Biden administration announced “additional sanctions relief” for some Syrian entities, a needed stop-gap measure to facilitate humanitarian trade and allow the sale and donation of energy supplies. The move is temporary both in time (six months) but also given that it provides some way to facilitate bilateral and private aid and remittances at a time when the US has done little to signal what sort of policy changes would be needed to lift sanctions. Syria is subject to a tangled web of sanctions, well documented by Alex Zerden and Delaney Simon and co-authors recently which leave it unbanked and the acting government is subject to terrorism designations. This phase of the administration is too late to set lines of what it would take for real sanctions relief, but doing so will be necessary to avoid entrenching the barter trade, illicit-drug ridden system that Syrian became. 

The Trump administration has said little about Syria and seems poised to defer some important decisions to regional partners – notably Israel and Turkey and maybe the Gulf States. These countries all have their own interests and aside from Israel, preferences about sanctions relief. Syria is likely to face pressures as Max Pressure ramps up on Iran despite the acting government pushing back on Iranian influence. It will be important to learn lessons from Afghanistan and elsewhere on the dangers of keeping sanctions in place for too long. But its hard to see Syria being a top priority. 

What else?

I’ll be commenting more on other sanctions regimes in due course including those on Myanmar, North Korea and Belarus (most sanctioned linked to Russia/Ukraine ceasefire, despite a separate Belarus program. Overall, I would expect sanctions to remain a key tool in the Trump administration despite a potential pivot in other tools being used. Afterall, sanctions are lower immediate cost to the sender (even if staffing the departments who impose and enforce them is growing) and they and other extra-territorial tools are needed to influence countries with which the US does not directly trade. Tariffs have a lot of limitations (diversionary trends, inflation) but also can not be applied if there is no direct trade relationship. Also expect more uncertainty both about sanctions policy, less focus on coordination with allies (especially on Russia and China, coordination on other regimes was sporadic and limited) and some growing pains on the interagency coordination. A final challenge will be how funding for sanctions and coercive tools interacts with planned extensive spending cuts. Cutting personnel could lead to significant gaps between de jure and defacto implementation, risking the development of loopholes while maintaining negative spillovers. What’s clear is that tracking coercive policy deployment both from the US and countermeasures from countries like China will keep us all busy for some time to come.