The impact of the Iran War has tested the sanctions regime against Russia, prompting varied responses. Global Insight analyses the consequences for Ukraine and the effectiveness of sanctions against Russia so far.

US President Donald Trump’s unprecedented attack on Iran in February has had serious humanitarian consequences and dealt a major blow to economies globally. Shipping restrictions imposed by Tehran on the Strait of Hormuz caused the price of oil to surge. Meanwhile, governments in Europe, Asia and the Americas struggled to mitigate the wide-ranging effects, and as for Putin and his inner circle, the crisis has presented a money-making opportunity.

In the first few months of 2026, Russia’s economy was facing serious challenges. According to the Kyiv School of Economics Institute, Russian oil and gas export earnings – traditionally accounting for 40 per cent of federal budget revenues – were at their lowest levels since the Covid-19 pandemic, and export and production volumes had fallen markedly for the first time in four years. This was largely due to the progressive weight of Western economic sanctions and successful Ukrainian drone and missile strikes on critical energy infrastructure.

The Iran War benefitted Russia financially by increasing the value of and demand for its oil. The Kyiv School of Economics Institute estimates that in March, Russia’s oil export revenues rose from $9.3bn to $19bn.

For the first time, the Iran War presented a real test of the West’s commitment to maintaining strict prohibitions on Russian oil. The response to the crisis from world leaders varied. In an attempt to steady global energy markets, the US administration temporarily lifted some sanctions on Russian seaborne oil, a move which was heavily criticised. The UK government reacted by delaying plans to ban imports of diesel and jet fuel made from Russian oil in third countries. The EU doubled down on its commitment to maintaining sanctions pressure on Russia and enforcing the G7 oil price cap – which prevents Western businesses from facilitating the transport of Russian crude sold above $44.10 a barrel.

‘The primary goal of the sanctions regime against Russia has been, and remains, to alter President Putin’s calculus by making the cost of his illegal war so prohibitively high that a return to the negotiating table becomes his only viable option,’ says Mark Ellis, the IBA’s Executive Director. ‘Easing pressure on his principal source of revenue – oil exports – risks achieving the opposite effect.’

Oil as a weapon of war

Following Russia’s full-scale invasion of Ukraine in 2022, the EU, UK and US and other allies imposed far-reaching sanctions against Russia aimed at squeezing its economy and weakening Putin’s war machine. These included trade embargoes, asset freezes, financial restrictions and travel bans. Because oil and gas are crucial sources of Russian government revenue, Western governments have focused heavily on restricting energy exports. While not always taking the same approach to sanctions, the EU, UK and US have coordinated closely and expanded restrictive measures over time.

In March, in response to the de facto closure of the Strait of Hormuz, the US reversed its position and issued highly controversial general licences to allow the sale and delivery of Russian crude oil already at sea. The US Treasury said that the relief, which lasted between March and June, was necessary to stabilise crude market prices and allow oil to reach ‘energy-vulnerable countries’.

The decision to ease sanctions against Russia prompted European countries, including the UK and Germany, to insist that the US and its allies should maintain maximum pressure on Russia over its invasion of Ukraine. US lawmakers also criticised the waivers, arguing that they stood to benefit the Russian economy.

Since Trump returned to power in 2025, the US sanctions regime against Russia has remained largely intact, but the administration has paused imposing any new restrictive measures. Instead, Trump has pursued alternative strategies to end the war in Ukraine. In a major exception to this, the US sanctioned Russia’s largest oil companies, Lukoil and Rosneft, in October. It followed the UK sanctioning the energy giants a week before. The EU has sanctioned Rosneft but not Lukoil, largely due to the dependence of Hungary and Slovakia on Russian crude.

US sanctions are a notoriously powerful tool of economic warfare because of the strength of the US dollar and extraterritorial reach of the US financial system. Thomas Biersteker, a professor at the Geneva Graduate Institute, says the US issuing a sanctions waiver on Russian oil risks undermining its ability to use sanctions relief as leverage to negotiate a settlement with Russia. ‘When you play that card, you no longer have that card in your deck,’ he says, adding that sanctions relief can be more effective in changing behaviour than adding additional restrictions.

Since international sanctions were imposed on Russia following its invasion of Ukraine, Russia has been forced to find alternative markets, sell its oil at a discount and spend billions on sophisticated circumvention efforts. These include added costs to import technology and military components through alternative supply routes and to purchase aged tankers to build a shadow fleet to transport sanctioned oil under the radar of the authorities. The UK government estimated that EU, UK and US sanctions cost Russia at least $450bn between February 2022 and June 2025. This includes $285bn in immobilised foreign currency reserves of the Russian Central Bank held within EU and G7 countries.

Biersteker says despite restrictions on Russian oil purchases and other economic sanctions not ending Russia’s invasion of Ukraine so far, evidence that sanctions are resulting in higher costs for Russia’s economy and changing its geoeconomic activity demonstrate they are fulfilling their intended purpose of constraining Russia. ‘The other important reason for sanctions is to send an affirmative signal that it is not okay to invade other countries,’ he says. ‘The United Nations system is founded on the idea of territorial integrity and opposition to the use of force to resolve disputes […] and Russia egregiously violated that norm.’

Whether companies involved in the transatlantic oil trade used the US general licences, and any effect on the Russian economy, is difficult to ascertain. Dara Fernandez, a partner at national security advisory firm Cina Fernandez, says it is difficult to see a situation where companies would have used the temporary licences on Russian oil because, when considering sanctions risk, they must factor in whether banks are willing to participate in transactions. Though there might be permission under one regulatory regime, there isn’t the equivalent permission or national security interest in other jurisdictions. ‘Even though the waivers may create quite a lot of noise, the reality is, once you start analysing the transaction, the involvement of different points of regulatory nexus as part of the supply chain and, most importantly, the need for support of a banking partner, the waivers may not actually authorise the intended transaction,’ she says.

There is also reputational and future regulatory risk to consider, says Chloe Cina, former Global Head of Sanctions Advisory at Deutsche Bank. While a handful of companies might have been tempted to make some quick cash by relying on the licences, most global, mature businesses are thinking beyond the term of the current US administration. ‘Decisions taken, which could be critical when it comes to any area that is under scrutiny of the regulator, need to be defensible not just now or in four years’ time, but beyond this administration and further ahead,’ she says.

In contrast to the US approach, the EU responded to the economic shocks of the Iran War by reinforcing its commitment to sanctions against Russia. Ursula von der Leyen, President of the European Commission, stressed that the war and the subsequent spike in global oil prices ‘is not the moment to relax sanctions on Russia’ and that enforcing the oil price cap would help stabilise global markets and limit Russia’s revenues. Announcing proposals for the bloc’s 21st package of sanctions in June, von der Leyen said the Commission intends to pause the oil cap adjustment mechanism, which follows market trends, until January to avoid Russia benefiting from the rise in oil prices.

In the UK, the government responded to the crisis by amending a raft of sanctions on Russia, delaying plans to ban imports of diesel and jet fuel made from Russian oil in third countries. The latest restrictions announced in May included bans on the maritime transport of Russian liquified natural gas and additional designations of individuals and entities. Timothy Ash, an associate fellow in the Russia and Eurasia Programme at Chatham House, believes the West has been too slow to impose meaningful sanctions on Russia because of a reluctance to bear the costs to their own economies. ‘We should understand that the national security threat from Russia is existential,’ he says.

The slow build-up of pressure

While the Trump administration has pulled back on introducing new sanctions against Russia, the UK and the EU have continued to incrementally increase pressure on the Russian economy. The EU’s latest sanctions package includes new measures targeting financial institutions, cryptocurrency platforms and shadow fleet vessels.

‘The conflict in the Middle East and disruptions to global energy supply chains have eased some pressure on Russia,’ says von der Leyen. ‘So, the objective of our package could not be clearer. We want to maintain the full intensity of our sanctions.’

The latest proposals followed the introduction of the EU’s long-stalled 20th sanctions package three months earlier. For the first time, the EU activated its anti-circumvention tool by banning the export of numerical control machines and radios to Kyrgyzstan, where there’s a high risk of diversion to Russia.

Yves Melin, Co-Chair of the IBA International Trade and Customs Law Committee, says the 20th sanctions package went further than previous measures regarding circumvention. He says the election of a more pro-EU government in Hungary in April is likely to have emboldened the EU. ‘Without being a game changer, it’s moving in the direction where the use of sanctions is going to be more effective,’ says Melin, who’s a partner at Cattwyk in Brussels.

The introduction of the EU’s 20th sanctions package came alongside the EU approving a €90bn loan to Ukraine, which the former Hungarian administration had blocked. Ukraine has also seen significant gains on the battlefield in 2026, which have been attributed to technological innovation and advances in its defence industry. In July, Putin made a rare admission that Russia faces challenges in its war with Ukraine, following drone attacks on Russian oil refineries. ‘Sanctions are not going to decide the end of the war on their own, but all of these things together mean that the pressure is going to stay increased on Russia,’ says Melin.

Despite the UK and EU committing to progressive sanctions against Russia, there are still exceptions in the rules that allow Russia access to Western markets and financial services. The recent focus on anti-circumvention measures and the targeting of third country intermediaries has led to renewed calls for European countries to fully end their dependence on Russian energy. According to the Centre for Research on Energy and Clean Air, the EU is the largest buyer of Russian gas and, between December 2022 and June 2026, bought six per cent of Russia’s crude oil exports. While the EU banned seaborne Russian crude oil imports in 2022, landlocked countries Hungary and Slovakia are permitted to continue receiving Russian crude via the Druzhba pipeline.

Some efforts towards total independence from Russian energy have been made. In 2025, the EU enacted legislation to permanently end its reliance on Russian gas by 2027 and phase out Russian oil and nuclear energy imports. The UK has committed to ending imports of Russian oil and jet fuel made from Russian oil in third countries by 2027.

Another important strategy for Western governments to raise pressure on Russia is targeting alternative financial systems the country has used to conduct transactions and purchase military goods and equipment. In recent years, EU and UK sanctions have focused more on targeting cryptocurrency platforms, used by Russia to bypass the scrutiny of traditional banks and circumvent sanctions. The EU’s most recent sanctions packages have included measures restricting crypto-assets, tokens and service providers. In May, the UK blacklisted a major crypto exchange over its alleged support of the Russian government.

Kinga Redlowska is the head of the Centre for Finance and Security Europe at the Royal United Services Institute (RUSI). She says the next phase of the Western sanctions strategy needs to broaden from listings of tokens and exchanges to include measures to identify and disrupt the infrastructure that allows sanctioned actors to convert crypto into traditional financial currency. This means targeting the liquidity providers, brokers, payment agents and jurisdictions that enable Russia-linked value to become usable financial power. ‘Early on, crypto was used for procurement of dual-use goods, but its use has expanded and Russia is learning how useful it is for them,’ she says.

Redlowska believes states need to engage with the private sector to help them understand how to address crypto threats proactively. She adds that the main challenge for lawmakers and enforcement is that cryptocurrencies and their related networks change so quickly. ‘The response does require flexibility and regularly updated enforcement strategies,’ she says.

Russian frozen assets yet to thaw

The ongoing debate about what should be done with the approximately €300bn in immobilised Russian central bank assets is another sensitive issue for Western governments. Belgium – which holds most of the funds in international securities depository Euroclear – has demanded strong guarantees against potential Russian retaliation. In 2024, the G7 agreed to use revenue generated from the assets to fund a $50bn loan to Ukraine but stopped short of using the principal capital.

The legality of confiscating the assets under international law has been fiercely debated. As US financial support for Ukraine has depleted under the Trump administration, the pressure has mounted on EU Member States to take decisive action.

Ash, who is also a senior sovereign strategist at RBC Global Asset Management in London, believes Western powers should use the immobilised assets to support Ukraine. ‘In the last six months, the deciding factor in giving Ukraine the advantage has been one of finance,’ he says, referring to the significance of the €90bn loan for boosting the country’s defence capabilities. ‘Allocating those resources to Ukraine would further cement its financial advantage in the war and send a message to the aggressor that aggression doesn’t work,’ he says.

Biersteker takes a different view. He believes the confiscation of the assets would be legal under international law but is concerned that the West would lose a substantial bargaining chip in eventual negotiations to end the war. ‘I question whether it’s good policy because it means that you don’t have this very strong potential benefit to Russia, to offer in exchange for concessions from the country,’ he says.

The enforcement of sanctions to incentivise individuals and businesses to comply is critical. Traditionally, the US Office of Foreign Assets Control (OFAC) has been the toughest enforcer of Russian sanctions – with strict liability tests for sanctions offences and the ability to issue relatively large fines for violations. Stephanie Connor, a partner at Holland & Knight in Washington, DC and former senior official at OFAC, says while the Trump administration’s sanctions policy has shifted the focus from Russia to Iran, Venezuela, Cuba and the Americas, the OFAC remains active in investigating Russia-related breaches.

The ‘OFAC and other agencies are still sending requests for information and going after companies for Russian sanctions violations,’ she says. ‘They are really focused on gatekeepers who are the lawyers and accountants or intermediaries who typically know if there is a sanctioned person in the mix of a particular transaction,’ she says.

In 2025, the OFAC handed its largest penalty of the year, $216m, to a San Francisco-based venture capital business over violations of Russian sanctions and failures to comply with a subpoena. Connor says that while public enforcement actions are essential to creating a strong deterrent effect, some of the most important work that the OFAC does doesn’t necessarily result in a fine. ‘A lot of the power of OFAC enforcement comes from behind the scenes and in the back and forth between agency and industry, particularly financial institutions. [The] OFAC will ask for information, formally or informally, which helps them gather a lot of intelligence and figure out where there might be some chinks in the armour,’ she says.

From the EU perspective, enforcement of the bloc’s restrictive measures has always been a challenge. Enforcement is carried out by individual Member States, which are responsible for investigating and prosecuting breaches and circumvention by companies and individuals. While the EU introduced a directive in 2024 to criminalise sanctions violations and harmonise penalties, the level of resources, expertise and political will to implement and enforce the law vary greatly between Member States.

Joydeep Sengupta, Head of Global Compliance and Investigations at Dentons in Paris, believes the EU should introduce a centralised sanctions enforcement and licensing authority to handle prosecutions of sanctions violations and permissions for certain transactions. ‘Sanctions investigations are specialised, technical, cross-border and require significant forensic resources,’ he says. ‘Many of the small countries don’t have the expertise, resources or capacity to handle these unilaterally, including gathering evidence across borders.’

The EU has seen a recent trend towards creating centralised criminal enforcement authorities. The European Public Prosecutor’s Office (EPPO) was introduced in 2021 to investigate and prosecute crimes that harm the finances of the EU, and the Anti-Money Laundering Authority came into effect in 2024.

Łukasz Lasek, a partner at Wardyński i Wspólnicy in Warsaw and an officer of the IBA Criminal Law Committee, supports the creation of an EU-wide sanctions authority and says it would be most practical if it focused on the most serious and complex crimes, at least initially. ‘We have seen that the EPPO has been very effective with prosecutors from different Member States working within one institution on cross-border investigations,’ he says. ‘And cooperation is more efficient.’

An alternative would be to expand the powers of existing EU authorities to cover sanctions violations. The EPPO itself has requested an extension of its mandate to cover breaches of EU sanctions. This discussion was initiated by the French and German justice ministers in 2022 and is supported by other Member States and in European Parliament resolutions. Currently, the EPPO can investigate sanctions circumvention but only when it is linked to a relevant criminal offence such as customs fraud.

The EPPO told Global Insight that it is confident that it is the ‘best available instrument’ to tackle cross-border sanctions breaches. ‘When tackling violations of EU restrictive measures, compared to a coordinated approach of national prosecution offices, the single-office structure of the EPPO is better suited to investigate cross-border conduct, to locate and preserve assets covered by the sanctions regime, to collect the necessary evidence and to implement a unified approach of prosecution before the competent national courts,’ the prosecuting authority says.

In the UK, after a quiet start since 2022, financial sanctions enforcer the Office of Financial Sanctions Implementation (OFSI) recently issued a series of civil monetary penalties for Russia-related violations. On the criminal side, in 2025, the Crown Prosecution Service successfully secured the first ever convictions of individuals for Russian sanctions violations.

The EU and UK have increasingly stepped-up enforcement against the shadow fleet in recent months. In June, the UK for the first time detained a shadow fleet vessel and in January, assisted the US with a dramatic chase and seizure of a Russian-flagged tanker. EU Member States have boarded and seized multiple ships suspected of belonging to Russia’s shadow fleet since the start of the year.

Ash believes investment by Western leaders in more robust and aggressive enforcement of G7 sanctions against Russia is necessary to end its invasion of Ukraine. He says the Iran War has proven that the world could live with stronger sanctions regimes and enforcement against Russia. ‘The durability of the global economy – the fact that the oil price didn’t go up to $150 a barrel or $200 – suggests that we shouldn’t be scared of cutting Russia out of energy markets because global markets can survive,’ he says.

Until the Iran War finally draws to a close its true impact on global economies will remain unknown. Yet the crisis has provided a clear opportunity for the West to reflect on the effectiveness of its sanctions regime against Russia. States have been forced to consider what is working, what can be improved and whether it can withstand economic pressures. Until Putin ends his illegal invasion of Ukraine, maximum pressure on him to return to the negotiating table must remain.

Alice Johnson is the IBA Multimedia Journalist and can be contacted at alice.johnson@int-bar.org