Sanctions and the Geopolitics of Trade

The prominence of free trade as a guiding principle in shaping relationships between countries has steadily diminished since the end of the Cold War. Instead, geopolitics has begun to regain its influence. This shift has major implications for global economies and consumers as nations impose trade restrictions such as unilateral sanctions and export controls. Accordingly, the changing international trade landscape is reconfiguring global markets as economies adapt to new trade barriers and alliances.

Over the past decade, trade restrictions driven by geopolitical factors have significantly increased. A recent report from the World Trade Organization regarding the G20’s largest economies highlighted that from October 2023 to October 2024, new export restrictions affected an estimated $230 billion in merchandise exports, a sharp increase from about $121 billion the previous year.

As geopolitical rivalries evolve, new sanctions, countersanctions and other restrictive measures are expected to influence trade flows through 2025 and beyond. It has become increasingly clear that rapidly changing geopolitical dynamics could lead to unilateral trade restrictions being lifted at any moment, especially concerning the United States’ sanctions on Russia. This situation follows a joint statement issued by Washington and Moscow after their recent summit in Riyadh, Saudi Arabia, where both parties emphasized the importance of “future cooperation for mutual geopolitical interests” and highlighted “historic economic and investment opportunities.”

Seismic new shifts in global trade flows

In the aftermath of Russia’s invasion of Ukraine in February 2022, global trade flows between Moscow and Western countries saw a dramatic decline. Exports from the U.S., the European Union and the United Kingdom to Russia plummeted sharply due to the imposition of economic sanctions. Between the first quarter of 2022 and the third quarter of 2024, the EU experienced a 58 percent drop in exports to Russia, while imports from Russia fell by 86 percent. The decline was even steeper for sanctioned goods, with two-way trade flows decreasing by 80 percent compared to other products. The decrease in bilateral trade between Russia and the U.S., and Russia and the UK, was even more pronounced: The UK’s imports from Russia nosedived by 94 percent, while its exports to Russia fell by 74 percent.

After several rounds of Western sanctions, Russia has shifted its trade relationships, boosting commerce with developing nations. Notably, trade flows between Russia and China jumped by 175 percent, increasing from $140 billion in 2021 – just before Moscow invaded Ukraine – to an all-time high of $245 billion in 2024.

Facts & figures

The U.S. has diversified its import share away from China

While U.S. imports of manufactured goods from China declined, the share of imported value added has remained stable. © GIS

The growth of trade between Russia and India has been even more substantial. According to India’s financial year data (April to March), their bilateral trade skyrocketed by 500 percent, increasing from $13 billion in 2021-2022 to over $65 billion in 2023-2024. In the current fiscal year, trade levels are expected to increase even further.

Russia’s direct trade with other Asian and Middle Eastern economies has also sharply increased, particularly with Turkey, the United Arab Emirates and Hong Kong. Key developing economies in the Western Hemisphere, especially Brazil, have also ramped up their business dealings with Russia. By 2024, their bilateral trade reached $12 billion, increasing from $7.5 billion in 2021.

Emerging new trade routes

As sanctions have driven Russia to pivot trade away from Europe mainly toward Asia, new intercontinental supply chains have emerged across the Eurasian landmass. A notable logistics network is the 7,200 kilometer-long International North-South Transport Corridor (INSTC). Initially developed in 1999 by Russia, Iran and India, this route links St. Petersburg in Russia to Mumbai, India’s financial hub, at its southern end. It passes through Baku, the capital of Azerbaijan, and the Iranian port of Bandar Abbas, creating a critical connection between these nations. The route mainly focuses on transporting freight by ship, rail and road.

Western sanctions against Iran hindered progress on the project in the mid-2000s. However, following the imposition of sanctions on Russia in 2022, the INSTC regained momentum. Countries such as Turkey, Armenia, Azerbaijan, Oman, Kazakhstan, Tajikistan and Kyrgyzstan have also started collaborating on this trade route, further enhancing its development.

Sanctions circumvention boosts unexpected trade flows

Exports from the EU and the UK to several of Russia’s neighboring countries, including Armenia, Kazakhstan, Tajikistan and Kyrgyzstan – all members of the Russian-led Eurasian Customs Union – have increased by a third since 2022. In turn, these countries’ exports to Russia have risen by similar levels.

The emergence of new trade routes is closely connected with efforts to circumvent trade restrictions on Russia. This trend is particularly noticeable in specific product categories, where items are either partially sanctioned or closely resemble those sanctioned. These include dual-use goods, metals, minerals, technologies and equipment used in oil and gas extraction.

While trade through Russia’s neighboring former Soviet-bloc countries can be used to bypass economic sanctions, such intermediated trade can only operate on a limited scale. Nevertheless, this approach complements broader patterns of trade diversion with key partners, particularly China and Turkey.

After a brief decline in 2022, Chinese exports to Russia have increased, covering a variety of products, including vehicles, machinery, electronics, metals, plastics and rubber. Notably, Russia’s demand for military-sensitive integrated circuits has soared. The influx from China has effectively replenished Russia’s electronics markets and partially addressed its technological needs. Additionally, Chinese automobiles, trucks and components have nearly dominated the Russian vehicle market, enabling China to emerge as the world’s leading car exporter in 2023.

Turkey exported goods worth $10.9 billion to Russia in 2023 while importing significantly more, totaling $45.6 billion. A similar trend can be seen in their investment relationships. Russian investments in Turkey focus on strategic and high-value sectors, including energy, metallurgy, banking and automotive industries. In contrast, Turkish investments in Russia are primarily directed toward construction, alcoholic beverages and chemicals.

Will more extraterritorial sanctions reverse new trade flows?

Since 2022, Russia has continued generating substantial oil export revenues, averaging around $665 million per day. This figure has remained steady over the past two years despite the changes in trade routes caused by sanctions.

To disrupt these new trade patterns, former President Joe Biden introduced a comprehensive sanctions package in January 2025, targeting Russia’s logistics networks with secondary sanctions. These sanctions specifically affect third-party operators such as oil and gas traders, oilfield service providers and ports interacting with Russia’s state-owned container ships. Notably, 183 vessels, referred to as Russia’s “shadow fleet,” transport oil and liquefied natural gas by sea.

Facts & figures

Germany’s exports have shifted away from Russia

Germany has shifted almost all of its natural gas imports from Russia to other countries. © GIS

The preemptive ban imposed by China’s Shandong Port Group on dealings with Russian oil tankers, along with similar announcements from private Indian port operators and oil traders, highlights the seriousness with which these sanctions are being regarded.

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Despite President Biden’s late efforts, the situation may not significantly change. In 2024, the U.S. enacted the Stop Harboring Iranian Petroleum Act, imposing sanctions on foreign entities involved with Iranian oil. Although these regulations affected many Iranian vessels, including 20 percent of liquified petroleum gas tankers, Iran’s liquified petroleum gas (LPG) exports hit a record high last year, mainly to China and India.

The extent to which President Trump will enforce, adopt or revoke sanctions against Russia, Iran and other countries remains uncertain. He has suggested imposing additional sanctions on Russian exports to the U.S. if Moscow does not engage in meaningful peace negotiations over Ukraine. However, the White House has now indicated that sanctions could be revoked as both the U.S. and Russia move toward normalizing their relations.

Source: GIS