The EU is confronted with a rise of economic statecraft in a more polycentric and confrontational geopolitical landscape. In this context, the role and effects of sanctions policy have undergone significant changes in recent years, requiring a more integrated and assertive EU approach to sanctions.
Following Russia’s full-scale invasion of Ukraine in February 2022, the EU introduced 15 sanctions packages of unprecedented scope and severity. Combined with measures by mainly Western partners, these sanctions have put a dent in the Russian economy .But unlike most post-Cold War sanctions efforts, where international coalitions led concerted, asymmetric actions against smaller, largely isolated states, sanctions against Russia have failed to rally a UN mandate and global support. This has helped the Russian war economy build circumvention networks through third countries for continued access to critical technologies and oil revenues – which has significantly softened the blow.
The case for a more assertive EU approach to sanctions
The limitations to the EU’s sanctions alliance are symptomatic of a relative decline of Western power and global trends towards multipolarity and authoritarianism. This has been accompanied by an upswing in military conflict in Eastern Europe and the Middle East. As the geopolitical climate becomes more confrontational and the international rules-based order continues to decline, economic statecraft – the use of economic tools by states to achieve foreign policy and national security objectives – is on the rise. This is particularly determined by the escalating great power antagonism between the US and China, as both nations have resorted to measures like tariffs, export controls, investment restrictions and targeted sanctions against companies and individuals.
Decades of hyper-globalisation have fostered deep economic and technological interdependencies, which are now increasingly weaponised to coerce and undermine geopolitical rivals, making well-targeted sanctions a potentially powerful tool in foreign and security policy. Russia has leveraged its oil and gas reserves and China has exploited its control over critical raw materials to exert pressure on others. Likewise, the US has used its dominance in global digital and financial infrastructure, as well as the central role of the US Dollar, as a powerful means of economic coercion.
The use of such economic statecraft is likely to further pick up under incoming US President Donald Trump, who has promised to intensify economic confrontation with China, the EU, and other countries. He is likely to pressure the EU to align with his restrictive measures against China, potentially using the US’s extraterritorial reach to compel compliance. In a world where Europe’s relative influence is decreasing, and power politics is on the rise, the EU will have to become more assertive and smarter in its use of economic statecraft – including sanctions – if it wants to achieve its economic, security and foreign policy goals.
Preparing for trade-offs
As the scope and the number of sanctions expand, the EU is confronted with intensifying trade-offs. The most obvious is between foreign and security policy goals on the one hand, and competitiveness and prosperity on the other. EU sanctions have exerted substantial pressure on the Russian economy, but they have also proven painful to the EU and other sanctioning parties. The restructuring of supply chains away from Russia has exacted costs on the European economy and Moscow’s retaliation, particularly in the gas sector, has significantly impacted European energy supply and prices. Financial sanctions can also undermine financial stability and the credibility of sanctioning countries as safe investment destinations or their status as international financial hubs.
This goes hand in hand with domestic political trade-offs. In democratic societies like the EU, public opinion can shift and is more easily influenced by foreign actors, allowing voters to push back against sanctions policies. Effective sanctions policy requires long-term planning, making continuity vital. But this is often more difficult to achieve when decision-making is constrained by electoral pressures.
As geoeconomic tensions escalate and the EU’s cost-of-living crisis deepens, anticipating these trade-offs and fostering domestic consensus will become increasingly important. To remain credible, politicians should be honest about the costs and clearly communicate what is at stake. Moreover, to improve economic and societal resilience against the negative consequences of sanctions, compensation mechanisms for vulnerable groups and companies should be prepared in advance.
As the effects of sanctions often extend beyond the sanctioning and targeted parties, minimising trade-offs with the EU’s capacity to build global partnerships is also crucial. Sanctions can cause collateral damage to third countries through the diversion of trade routes but also face evasion and circumvention when these promise windfall gains. To address this issue with respect to its Russia sanctions, the EU has begun to explore the use of extraterritoriality, targeting intermediaries and EU foreign subsidiaries in third countries.
While the EU has thus far adopted a cautious approach centred on diplomacy, a shift towards extraterritoriality could help the EU close loopholes in its sanctions regime. This however could also negatively affect relationships with other players such as countries in the ‘Global South,’ which are becoming increasingly important as strategic partners for critical supply chains as the EU attempts to diversify its trade. In a less Western-centric world, a singular focus on coercive and prescriptive measures like extraterritorial sanctions could make those countries more receptive to the influence of strategic competitors like Russia and China.
The threat of sanctions should therefore be more closely paired with positive incentives for targeted countries to refrain from a certain course of action or for third-country actors to comply with sanctions against targeted entities. These could include trade and investment agreements, debt relief, development aid, diplomatic recognition, visa facilitation or security guarantees and technical support in preventing sanctions evasion: sanctions relief and trade facilitation, for example, proved effective in the Iran Nuclear Deal, but such an approach has not been employed since. The West should also develop remedies to address the critical concerns of countries in the ‘Global South’, including rises in food and energy insecurity, and ensure equitable access to vaccine technology.
Towards a more integrated EU sanctions strategy
To enhance the synergy between positive incentives and economic statecraft, and to design a more effective sanctions policy overall, the EU should embrace a long-term perspective and more closely align its sanctions strategy with its broader foreign, security and economic policies.
Sanctions should work in synchrony with a wide array of foreign and security policy tools to be used in close cooperation with international partners. These include military deterrence, legal proceedings, diplomatic pressure, support for opposition forces in targeted countries, and political, economic, and military support for threatened or attacked states. Such a combination has been used in response to Russia’s war against Ukraine but not always effectively, as the timing of arms deliveries has not consistently matched that of sanctions packages – thus failing to exert coordinated pressure.
Moreover, sanctions policy ought to be closely aligned with the EU’s economic security strategy, which so far makes no reference to them. Sanctioning potential should be a criterion welded into the EU’s economic security framework. It should be considered in the EU’s trade diversification and friendshoring strategy and inform decisions on which strategic sectors to promote (homeshoring). This could help cushion against the negative fallouts of sanctions. It could also increase their leverage by making others dependent on the EU in strategic industries, an approach that the Japanese have spearheaded under the label of strategic indispensability.
Intensifying capacity building
The EU has updated its trade defence toolbox including instruments such as the Investment Screening Regulation, the Foreign Subsidies Regulation or the Anti-Coercion Instrument. But these measures need to take greater account of the use of secondary sanctions, which Trump is likely to introduce and for which China has devised powerful counter instruments. They should be complemented by a unified export control regime, the development of secondary sanctions tools, and the legal and technical instruments required to wield sanctions not just reactively but also offensively: as a deterrent capable of leveraging economic power for security.
To better target sanctions, close loopholes, and anticipate unintended consequences, a deep understanding of international supply chains is critical for both states and companies. The EU, member states and private actors must therefore improve their capacities in supply chain intelligence and pool this information better. The Commission should raise awareness of the importance of this endeavour in member states and among businesses and develop incentives for public-private partnerships and greater information sharing. Moreover, the EU should adopt a more offensive communication strategy, naming and shaming EU and third countries allowing sanctions evasion.
While EU Sanctions Envoy David O’Sullivan has helped to better coordinate sanctions policy with respect to third countries, there remains a need for stronger enforcement across member states. To remedy this, the long-term goal should be to centralise enforcement within the EU, at a level similar to that of the US Office of Foreign Assets Control (OFAC). For the time being, member states and private actors should dedicate greater resources and coordinate better in enforcement, which the EU could incentivise by providing common standards and covering overhead costs where possible. Moreover, the introduction of qualified majority voting on sanctions and extending their required renewal period beyond six months could make EU sanctions policy more agile, credible and impactful.
Given the uncertainties surrounding the new Trump presidency, a strengthening of Eurosceptic forces in the EU, and the diverse interests of member states, the future direction of EU sanctions policy is anything but clear. But if the EU wants to defend its values and interests in a world increasingly marked by conflict and economic coercion, it will have to become more adept at leveraging its economic power through a more integrated and long-term approach to sanctions.
Philipp Lausberg is a Senior Policy Analyst in the Europe’s Political Economy programme.
Svitlana Taran is a Fellow in the Europe in the World Programme at the European Policy Centre.
Raul Villegas is a Junior Policy Analyst in the Europe in the World Programme.
The support the European Policy Centre receives for its ongoing operations, or specifically for its publications, does not constitute an endorsement of their contents, which reflect the views of the authors only. Supporters and partners cannot be held responsible for any use that may be made of the information contained therein.