By Dr. Constantin Gurdgiev, Associate Professor of Finance, Monfort College of Business, University of Northern Colorado

This January, the Republicans took over Washington, D.C., as the dominant force in the legislative, executive and judicial branches of the federal government. Put simply, 2025-26 will be firmly shaped by a single political party cohesively united around the presidency of Donald Trump.

Beyond that, we have little understanding of the policy landscape for the next two years.

The reason for this is due to the fact that MAGA (Make America Great Again) is a movement not of political ideology but of populist convenience. Thus, the preeminent imperative of cutting the cost of living coexists side by side with the promise to raise tariffs on goods imported from the rest of the world. The promise of an immigration clampdown is juxtaposed with the goals of raising American competitiveness and reducing inflationary pressures. Promises to end US military entanglements abroad sit next to threats to annex the Panama Canal and Greenland and designate Mexican drug cartels as terrorist organizations.

Everywhere you look, both the legislative and executive agendas of the incoming administration are full of unresolvable juxtapositions.

Holding one stable course: sanctions

Except for one area: President Donald Trump’s America First agenda is offering no departures from the status quo ante on sanctions.

Since roughly 2012, American leadership has ramped up its ambitions in the geoeconomic space. From the dollar and current account to persistent attempts at controlling a range of strategic sectors—including international payment systems, banking and finance—Washington has weaponized every imaginable aspect of international flows. On his second day in office, President Trump threatened to impose new sanctions against Russia should Moscow refuse to sign up to a yet-to-be-detailed peace deal in Ukraine.

This status quo ante can be characterized by a few quantitative metrics. None indicate success.

The number of outstanding economic and financial sanctions deployed by the United States against its adversaries rose from around 140 articles of sanctions in the late 1990s to about 250 in the early 2010s. In 2023 alone—the latest for which we have data—there were 2,500 new Specially Designated Nationals and Blocked Persons (SDN) List entries, according to the Center for a New American Security (CNAS) database. Today, per the Office of Foreign Assets Control (OFAC) database, the US is sanctioning 23 countries.

More than a quarter of a century ago, Hoover Institution’s research fellow David R. Henderson mused that the US “has gotten in the habit of imposing economic sanctions in order to punish foreign governments. It is a habit Congress should break”. Since then, the sanctions scope has expanded more than tenfold.

Yet, what was true back then is true now: The weaponization of geoeconomic policies is a bad habit. In her book on the subject, Agathe Demarais of the European Council on Foreign Relations (ECFR) cited a review of all US sanctions imposed since 1970. According to the study, targeted countries altered their behavior in line with US demands just 13 percent of the time. (Bajoghli et al. [2024] covered the history of the US sanctions against Iran—the measures that have been in place since 1979—finding that in many cases, these restrictions triggered impacts that were the exact opposite of those intended.)

Consider the most recent and sophisticated—in scope, complexity and international reach—bout of sanctions-based warfare. In 2022-23, Russia dominated the US SDN List, accounting for up to 70 percent of all country-specific designations. These sanctions cover individual measures against numerous Russian persons and entities. (Per the CNAS database, the administration of President Joe Biden expanded sanctions against non-Russian actors in addition to its aggressive targeting of Moscow. These included Iran, Belarus, Burma and the Democratic People’s Republic of Korea [DPRK or North Korea]. All in, the US issued 1,553 designations for non-Russia-Ukraine-War reasons in 2022-23. The range of sanctions targets has also expanded in recent years and now covers programs designed to combat corruption, human-rights violations, terrorism, narcotics trade, the proliferation of weapons of mass destruction and cyber-enabled threats. Drug-trade-related sanctions saw the biggest rise under the Biden Administration, up more than threefold between 2022 and 2023.)

De facto, there is no sector of Russia’s economic activity that Washington does not sanction. The country’s financial system has been effectively cut off from dollar-based financial flows and payments. Half of the country’s sovereign wealth funds are arrested. When sanctions were first scaled up in the first half of 2022, the US administration claimed that these historically unprecedented measures would degrade the Russian economy into a deep recession, rendering it unable to prosecute the war in Ukraine.

Far from achieving their objectives, many of these sanctions have backfired. Take, for example, European and US banks’ barriers to fund transfers from Russia, the European Union (EU) ban on Russian investors’ access to Euroclear-registered assets and the US sanctions against Russian exchanges. Per a Brookings report, before these measures were instituted from late 2022 on, Russia was losing some $3-3.5 billion in household-fund outflows, peaking at $5.1 billion in April 2022, more than 12-fold above the pre-war average. Then, the aforementioned sanctions ramped up. Under the weight of these Western financial sanctions, Russian households reduced their transfers abroad to around $1.0-1.2 billion per month in 2023-24. Sanctions against exchanges, at the same time, have kept billions of dollars’ worth of hard currency from leaving Moscow’s coffers. The same Western sanctions are also credited with forcing roughly 500,000 Russian emigrants who fled to the EU in 2022 to return to Russia from 2023 through 2024.

A much-lauded US-led ban on Russian banks transacting through the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network and with dollar-handling financial institutions has also backfired: The overall share of Russian exports paid for in rubles rose from 12 percent to 42 percent over 2022-23.

Macro-level lessons from a systemic failure

Three years on, Russia’s real gross domestic product (GDP) has grown robustly, inflation appears to be relatively manageable, and Moscow is flexing its ability to run a functioning war-time economy. Meanwhile, Iran is trading briskly in energy and other commodities across the Global South, and the BRICS (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates) counter-Western club of economies now includes as member states roughly 55 percent of the global population. Even Venezuela has managed to survive the full onslaught of the US’ financial and economic might directed at the country for years.

The fact is: The G7 (Group of Seven) plus EU (G7+EU) sanctions are triggering international responses that render both current and future sanctions counterproductive. For those of us working in the fields of conflict finance and geopolitical finance, all of this was predictable.

In December 2023, co-authors and I published a paper with our preliminary analysis of the impact of Russia-targeting sanctions on Western companies’ strategic responses to the Russia-Ukraine war. We showed that Western investors have de facto punished US companies that decided to exit the Russian market in the wake of the onset of the war under political pressure from NATO (North Atlantic Treaty Organization) capitals. Why? Because ethics take a backseat to profits, even when ethical choices are backed by public protest campaigns. In fact, our latest research demonstrated that the more ethical the firms’ strategies were prior to the war onset, the more these firms were punished by investors for taking strong stances in the wake of the February 2022 events.

In another paper, different co-authors and I looked at what drives energy prices in Europe in the presence of geopolitical shocks. We showed that energy exporters (in this case proxied by the Nord Stream pipeline) have material ability to influence global markets. This ability allows them to counter sanctions and ameliorate regulatory constraints. In a geopolitically fragmented world, nation-states are checked in their power projections by monopolistic and monopsonistic firms. This means that the costs of any geopolitical threat will be distributed back into the economies from which it originated. This argument is reinforced by another study on European energy markets showing how ineffective traditional tools for managing inflationary pressures (for example, price controls) are in a setting of sanctions-heavy market environments.

In fact, much of the research on financial and economic markets’ interconnectedness and the impacts of geopolitical and geoeconomic shocks agree on one point: A multipolar world is becoming more resilient to sanctions. Since the start of this millennium, as the globalization momentum faded, international institutions became more fragmented, less cohesive and, hence, less susceptible to the control of one particular superpower. At the same time, global financial flows are becoming more captive within the emerging power blocs, or more broadly, the Western bloc and the BRICS-affiliated bloc.

As Western sanctions’ effectiveness declines and non-Western economies’ responses to these sanctions become more robust, the tipping point for the US dollar’s hegemony over global financial and trade flows is also approaching.

One aspect of this trend is that we are witnessing a significant deterioration in the quality of data signals we can use even to monitor the sanctions’ effectiveness. Russian commodities trade is a case study here. By all available physical indicators, Russia is exporting plenty of key commodities using a new range of intermediaries. In response to the G7+EU sanctions, Russia has captured more of the value added in its trade supply chains, adding services previously fully outsourced to third-party providers, including insurance and shipping. In addition to allowing Russia to bypass the sanctions and price controls imposed by the West, these measures have made existing price benchmarks for Russian commodities sales effectively useless.

Similarly, the 2022-24 sanctions experience has shown that countries are now proactively attempting to reduce their risk exposures to them in advance. For example, prior to 2022, Russia managed to move more than half of its sovereign-wealth assets out of the reach of the West. Since 2014, with the first bout of Russia-targeting sanctions, the BRICS have been increasing the share of their reserves held in currencies other than those of the G7. Post-2022 sanctions, the BRICS and aligned countries have started to rapidly expand the volumes of bilateral trade settled in their own currencies. The deployment of SWIFT sanctions against Iran in 2012 triggered China and Russia to start developing their own alternatives to the Western-dominated payment infrastructure, including Russia’s SPFS (System for Transfer of Financial Messages) and China’s CIPS (Cross-border Interbank Payment System), with India’s UPI (Unified Payments Interface) being a potential third alternative. BRICS Pay is a new iteration of these efforts now being developed on a multilateral basis. China is already running a central bank digital currency (CBDC) platform that is completely inoculated from the dollar, making it effectively immune to primary sanctions. Finally, last year, China began testing new BRICS-based venues for the issuance of euro-dollar debt.

The Russian experience with Western sanctions is the most extreme one, but it is not an isolated case. It is, instead, a laboratory for the glacial shifts happening elsewhere in the global economy. Today, BRICS economies’ combined GDP (PPP [purchasing power parity]-adjusted) amounts to roughly $77.1 trillion, or 36 percent more than the combined GDP of the G7 Western economies. By 2029, the International Monetary Fund (IMF) has forecasted the same gap to rise to 54 percent.

It is hard to imagine what possible future drivers could support any case for the continued weaponization of financial and trade flows by the G7 beyond exceptionally well-designed, highly targeted specialist restrictions accompanied by clear, pre-specified conditions for lifting them.