The popular picture of sanctions is a trade ban: a government forbids selling things to a pariah state and waits for the shelves to empty. The regimes that actually change behaviour work differently. Their force runs through banks, clearing systems and insurers, because a state can smuggle oil and machine tools far more easily than it can smuggle access to the dollar.
Consider what happened to Russia after February 2022. The measures that mattered most were not the export bans on luxury goods but the freezing of roughly $300 billion of central bank reserves held abroad, the disconnection of major Russian banks from SWIFT, the Belgian-based messaging network that underpins cross-border payments, and the loss of correspondent banking relationships in New York and London. A bank that cannot clear dollars or settle in euros is crippled regardless of what physical goods cross which borders. In the UK, the Office of Financial Sanctions Implementation, a unit of HM Treasury, administers the asset freezes under the Sanctions and Anti-Money Laundering Act 2018, and every regulated firm from high-street banks to estate agents must screen clients against its consolidated list, which now runs to thousands of designated people and entities.
Insurance is the quieter chokepoint, and it is a peculiarly British one. Around nine-tenths of the world's ocean-going tonnage carries protection and indemnity cover from the International Group of P&I clubs, a network with deep roots in the London market. When the G7 imposed its oil price cap in December 2022, it did not try to stop Russian crude moving — India and China were always going to buy it. Instead it barred Western insurers, brokers and shipowners from servicing any cargo sold above $60 a barrel. The design turned Lloyd's of London and the clubs into enforcement infrastructure: no attestation that the price was under the cap, no cover.
That is where the grip runs out, and the market showed it quickly. Russia and its trading partners assembled what analysts call a shadow fleet — several hundred ageing tankers, bought at inflated prices through shell companies, reflagged to registries such as Gabon and the Cook Islands, and insured by opaque carriers whose capacity to actually pay a major spill claim is doubtful. These vessels switch off or spoof their AIS transponders, conduct ship-to-ship transfers in international waters off Greece and Malaysia, and sail on. By 2024 the majority of Russian seaborne crude was moving outside the price cap's insurance net entirely. The cap still cost Moscow money, by forcing discounts and expensive workarounds, but the fiction of a binding ceiling had gone.
The middleman problem
Goods sanctions leak through a different valve: the third-country re-export. A British or German firm may be strictly barred from selling semiconductors, machine tools or aircraft parts to Russia, yet perfectly free to sell them to a trading company in Dubai, Istanbul or Bishkek. Trade statistics after 2022 showed exports of exactly these categories from EU states to Central Asian countries multiplying several times over, while those countries' own exports to Russia rose in step. Each individual transaction at the first hop is usually lawful; the diversion happens downstream, behind a chain of invoices.
Enforcement has adapted by moving up that chain. The United States uses secondary sanctions, designating foreign banks and traders who facilitate evasion even when no American touches the deal, and the mere threat has pushed banks in Turkey, the UAE and China to refuse Russian-linked payments rather than risk their own dollar access. Britain and the EU have followed more cautiously, adding named intermediaries to designation lists and writing "no re-export to Russia" clauses into contracts. The UK created a dedicated Office of Trade Sanctions Implementation in 2024 to chase exactly this traffic, alongside OFSI's financial remit and the National Crime Agency's criminal cases.
What leakage actually proves
None of this means sanctions fail. It means they price things. A regime under comprehensive financial sanctions pays a permanent tax on every transaction: discounts on its exports, premiums on its imports, fees to middlemen, and the slow decay of access to Western technology and capital markets. Iran's economy has functioned under sanctions for decades, but at a fraction of its potential. The honest way to judge a sanctions regime is not whether tankers still sail — they always will — but whether the target is paying enough for the workarounds to change what it can afford to do. The leaks map the limits of financial power; the costs of maintaining those leaks measure what remains of it.
