The ‘spider effect’ of sanctions presents a business risk in 2026

Navigating sanctions-related risk is not simply about understanding what restrictions are currently in place; it necessitates thinking about the direction of travel and where a risk might arise that businesses might need to untangle themselves from.

In a changing world where there is ongoing conflict, unpredictability, and challenges to established norms, that task is difficult, but there are concrete steps businesses can take to help them navigate sanctions-related risks.

Sanctions 101

Sanctions are essentially restrictions on dealings with individuals, with entities, with governments, and countries. The most common sanctions generally fall into three broad categories: financial sanctions – broadly, restrictions on dealings with money and asset flows; trade sanctions – restrictions that target goods, technology, software and different types of services; and sectoral sanctions – generally, restrictions that target specific industries. 

The US, UK and EU are arguably the most relevant imposers of sanctions for businesses to be aware of. This is because US sanctions have extra-territorial impact and because most other major Western economies tend to adopt a similar approach to the US, UK and / or EU, albeit there is increasing divergence.

Beyond the West, there is an increase in the use of counter sanctions, particularly by Russia and China, which have imposed their own restrictions in response to sanctions placed on them.

Step one: identify applicable regimes

To navigate sanctions-related risks, businesses must first identify which sanctions regimes they are exposed to. This requires a holistic look at business operations globally – where people are located, where companies in the group are established, where materials are sourced from, and what items are being traded.

It is important for businesses to understand that where companies in their own group are incorporated, and the nationality of their own personnel, will be relevant considerations to identify exposure. In the case of individuals, it is possible for business personnel to be exposed to sanctions regimes owing to their nationality even if the business itself is not at risk of non-compliance.

US-origin items carry unique sanctions and export control risks because of the extraterritorial reach of US law. Certain US-origin items remain subject to US jurisdiction even when outside of the US. This means for example, if a UK-based business sources materials from the US which then flow further down the supply chain to eventually being imported into Iran, that supply could breach not only the sanctions the UK has in place in respect of Iran but also those in place in the US.

It is important not only to think about what restrictions are currently in force but those which could materialise in future owing to, for example, geopolitical developments, as this will be relevant to decision-making over strategic investments.

Beyond considering strict application of the sanctions themselves, businesses should also consider their contractual obligations. This could include bank covenants, or arrangements with important customers or suppliers, which may oblige a business to comply with certain sanctions regimes even if they are not required to do so as a matter of law.

Step two: assess exposure to countries of concern

Comprehensive sanctions are in place in respect of a number of countries, such as Russia, Belarus, Iran, Syria, North Korea, and – of relevance to recent developments in the news – Cuba and Venezuela. More targeted sanctions regimes are also in place targeting other countries, while thematic regimes are also in place that focus on particular behaviors rather than geography. The UK has published a list of current sanctions regimes in place, as has the US and the EU.

Increasingly, thought needs to be given not only to the countries directly targeted by sanctions but the spider effect of that. For example, recent Russian sanctions packages have included measures targeted at companies outside of Russia that support Russia. These have included an Indian refiner of Russian crude oil, a Chinese importer of Russian LNG and a UAE company engaging in irregular and high-risk shipping practices while transporting Russian oil.

Taking Russia as an example, even if a business does not have touch points with Russia in terms of its operations, personnel, customers or supply chain, they need to look at who their counterparties are transacting with to understand what the risk of a future designation might look like. The spider effect of sanctions means that future risk can arise for dealings with those providing significant support to Russia and that should be factored into risk assessments. The UK and EU Russian sanctions regimes allow for financial sanctions to be imposed on those operating in sectors that are of strategic significance / provide substantial revenue to the government of Russia.

This exercise is about going into future transactions with your eyes open and viewing certain dealings as higher risk that need to be worked through because of the possibility of the sanctions having that spider effect.

Step three: identify and understand your wider risk profile

We touched upon country risk under step two, including the risk of future designation of those operating in sectors of importance to the Russian government. There are additional factors that influence risk profile:

• Payment routes – dealings with banks targeted by financial sanctions, either directly or indirectly via the banks’ ownership or control structure, can pose a sanctions risk even if the bank’s customer is not targeted by these sanctions;
• Transactions involving ‘higher risk items’. The Common High Priority List (CHPL) is a coordinated list of sensitive goods that pose a heightened risk of being diverted to support Russian military operations. It was developed by the UK, US, EU and Japan. In its “Countering Russian sanctions evasion – guidance for businesses”, the UK stated that for items listed on the CHPL “businesses should consider conducting enhanced due diligence on customers based within, but not limited to”Armenia, China, including Hong Kong and Macau, India, Kazakhstan, Kyrgyzstan, Malaysia, Serbia, Thailand, Turkey, the UAE, Uzbekistan and Vietnam.

More generally, and linked to step two, thought should be given to which geographic markets in proximity to countries of concern pose an enhanced risk of circumvention of sanctions by counterparties to contracts, as well as where there may be legitimate alternative trade routes businesses could make use of to get around restrictions.

Step four: consider stakeholders such as banks, suppliers, auditors, and insurers

Stakeholders may expect businesses to comply with sanctions regimes that they are subject to – even if the business itself is not in-scope of those regimes from a jurisdictional perspective.

Failure to account for this could expose stakeholders to the risk of breaching the sanctions themselves or to a breach of the stakeholders’ own compliance position on dealings with certain countries or entities. In this latter regard, a risk is that even if a business can lawfully trade without breaching sanctions, there may not be able to get insurance coverage for that activity or even get paid, if the insurer/bank exercises internal policy against the processing of certain country transactions.

Step five: contingency plan

As my colleague and I wrote last year, companies need clear sanctions management policies and protocols prior to starting projects.

Businesses may be able to mitigate some risks in how they contract – such as by allocating specific liabilities for sanctions-related risks instead of relying on local laws and interpretation of boilerplate terms in their contracts, like force majeure clauses, to dictate whether liability arises. Addressing this at the outset can avoid ambiguity and disputes arising.

The risk businesses could face in enforcing contractual breaches also need to be given serious consideration upfront. This is because there is a possibility that the courts of the countries in which businesses would look to enforce may not recognise the sanctions in question – either now or in the future.

Step six: question, question, question

Corporate structuring and professional secrecy laws globally can make it challenging for businesses to identify ultimate ownership of companies they are transacting with and therefore the nature of their exposure to financial sanctions-related risks. Businesses should not take things at face value – they should seek to get ‘under the bonnet’ of an organisation to understand if there is an unidentified sanctions risk because of the ownership and control arrangements and/or broader links to countries of concern.

Obtaining assurance of place of intended use of items – an end-user undertaking – and a commitment not to re-export/divert – is a further recommendation to drive compliance with trade sanctions. Care should be taken, however, as these can be falsified or inaccurate. Independent verification may be needed. In this respect, there are questions businesses could ask themselves. For example:

• Does the counterparty have a business presence/active operations in the country referenced in the undertaking?
• Does the trade fit with the counterparty’s commercial activity? For example, is a textile company purchasing advanced electronics?
• Is the counterparty a subsidiary, branch or joint venture partner of an organisation in a country subject to a comprehensive sanctions regime? Is it a shell company?

This article develops themes explored in a November 2025 Pinsent Masons webinar aimed at Middle East oil and gas businesses.