In December 2023, the United States issued an executive order threatening secondary sanctions against foreign banks that facilitated transactions supporting Russia's war economy. Within weeks, several Chinese and Turkish financial institutions quietly began pulling back from Russian business. No primary sanctions had been imposed on those banks. No laws in their home countries had been broken. Yet the mere threat of being cut off from the U.S. financial system proved sufficient to alter their behavior.

This episode illustrates the peculiar power—and the deep controversy—of secondary sanctions. Unlike traditional sanctions that target specific countries, entities, or individuals, secondary sanctions reach further. They penalize third parties in other countries for doing business that one nation deems unacceptable. It is, in essence, economic leverage applied at one remove.

Secondary sanctions have become one of the most potent and contested tools in modern economic statecraft. They generate genuine results in tightening economic pressure. They also generate genuine resentment among allies and adversaries alike, raising fundamental questions about sovereignty, legal jurisdiction, and the durability of the financial architecture that makes them possible.

Primary sanctions have an inherent structural weakness: they only bind the entities and jurisdictions that impose them. When the United States sanctions a country, American companies must comply. But companies in Dubai, Istanbul, or Shenzhen face no such obligation. This creates a predictable dynamic—sanctioned trade doesn't disappear, it reroutes. Goods flow through intermediary countries. Financial transactions pass through banks with no connection to the sanctioning jurisdiction. The economic pressure that sanctions are supposed to create dissipates through a thousand small channels.

Secondary sanctions exist to close those channels. The logic is straightforward: if you cannot prevent third-country actors from trading with a sanctioned target through legal authority, you can deter them through economic consequence. A Turkish bank processing payments for a sanctioned Iranian entity may face no legal prohibition under Turkish law. But if that bank also wants to clear dollar-denominated transactions, maintain correspondent banking relationships in New York, or access U.S. capital markets, it faces a choice. The sanctioning state forces that choice into the open.

The evidence suggests this approach works—at least partially. After the U.S. imposed secondary sanctions under the Iran nuclear program, major European banks paid billions in fines and largely withdrew from Iranian business, even though European law did not prohibit those transactions. Trade volumes between Iran and its remaining partners declined significantly. When applied to Russia after 2022, secondary sanction threats measurably reduced the willingness of banks in China, the UAE, and Turkey to process certain Russian transactions.

But effectiveness comes with important caveats. Secondary sanctions are most powerful against actors deeply integrated into the U.S.-centered financial system. They work less well against entities that have limited dollar exposure or that operate in economies large enough to absorb the cost of American displeasure. They also tend to create a compliance gap—large, visible institutions pull back while smaller, less regulated intermediaries step in, often at higher cost and lower efficiency, but enough to keep some sanctioned trade flowing.

Takeaway

Primary sanctions create the rules. Secondary sanctions create the consequences for those who help others break them. Their power is proportional to the sanctioning country's centrality in global finance—which means their effectiveness is never absolute, and never permanent.

The legal foundation of secondary sanctions is, to put it diplomatically, contested. Traditional international law holds that a state's jurisdiction extends to its own territory, its own nationals, and conduct that has direct effects within its borders. Secondary sanctions stretch these principles to their limits—and often beyond. When the United States tells a South Korean company that it will face penalties for trading with Iran, even though the transaction involves no American persons, no American territory, and no American goods, the jurisdictional claim rests on something more creative.

That something is typically the dominance of the U.S. dollar and the American financial system. Because the vast majority of international dollar transactions clear through U.S. correspondent banks, almost any significant cross-border payment creates a touchpoint with American jurisdiction. The legal theory is that this touchpoint—however brief, however automated—brings the transaction within U.S. regulatory reach. Additionally, the sheer market power of the United States means that even the threat of being designated creates a compliance incentive that functions independently of formal legal authority.

This approach generates friction far beyond the immediate targets. The European Union has repeatedly objected to secondary sanctions as violations of international law and sovereignty. When the U.S. reimposed Iran sanctions after withdrawing from the JCPOA in 2018, European governments were furious—not because they supported Iran, but because American law was effectively overriding European foreign policy choices. The same dynamic plays out with countries like India and Brazil, which resist the implication that their trade relationships are subject to another nation's approval.

The sovereignty objection is not merely rhetorical. It reflects a genuine structural tension in the international system. Secondary sanctions work precisely because the global financial system is concentrated and hierarchical. But each application of that concentrated power reminds other nations of their dependence on a system they did not design and do not control. Over time, this creates incentives to build alternatives—a dynamic that may ultimately undermine the very infrastructure that makes secondary sanctions effective.

Takeaway

Secondary sanctions derive their legal force not from traditional jurisdiction but from structural financial dominance. Every time that dominance is exercised coercively, it simultaneously demonstrates its power and accelerates the search for alternatives to it.

Nations on the receiving end of secondary sanctions have not been passive. The most established countermeasure is the blocking statute—legislation that prohibits domestic companies from complying with another country's extraterritorial sanctions. The European Union's Blocking Regulation, first enacted in 1996 and updated in 2018, formally forbids EU companies from complying with specified U.S. secondary sanctions and nullifies any foreign court judgments based on them. In theory, this places European companies in an impossible position: comply with U.S. sanctions and violate EU law, or comply with EU law and face U.S. penalties.

In practice, blocking statutes have been largely symbolic. European companies have overwhelmingly chosen to comply with U.S. sanctions rather than test the EU's willingness to enforce its own blocking regulation. The reason is simple arithmetic: for most multinational companies, access to the U.S. market and the dollar-clearing system is worth more than any individual transaction with a sanctioned country. The blocking statute creates a legal fig leaf but does not change the underlying economic calculus.

More consequential in the long run are the structural countermeasures aimed at reducing dependence on the systems that give secondary sanctions their teeth. China's Cross-Border Interbank Payment System (CIPS) is designed as an alternative to SWIFT and the dollar-clearing infrastructure. Russia and China have increased the share of bilateral trade settled in yuan. The BRICS grouping has explored alternative payment mechanisms. Central bank digital currencies are being developed partly with sanctions-resistance in mind.

None of these alternatives yet rival the efficiency, liquidity, or network effects of the dollar system. But they represent a directional shift. The more aggressively secondary sanctions are deployed, the stronger the incentive to develop workarounds becomes. This creates a paradox for the sanctioning power: each use of the tool slightly degrades the conditions that make the tool effective. The question for policymakers is whether the short-term gains from secondary sanctions justify the long-term erosion of the financial architecture that enables them.

Takeaway

Blocking statutes are declarations of principle; alternative payment systems are declarations of intent. The real countermeasure to secondary sanctions isn't legal resistance—it's the slow, expensive, but persistent construction of parallel financial infrastructure.

Secondary sanctions occupy an uncomfortable space in international relations. They are neither purely economic nor purely legal—they are exercises of structural power, leveraging the architecture of global finance to extend one nation's policy preferences across borders. Their effectiveness is real but contingent on the very dominance they risk eroding.

For international affairs professionals, the key analytical question is not whether secondary sanctions work today. They clearly do, in measurable ways. The deeper question is whether their repeated use accelerates a fragmentation of the global financial system that would leave all parties—including the sanctioning power—worse off.

The logic of secondary sanctions is the logic of a unipolar financial world. As that world slowly becomes more multipolar, the tool will not disappear, but its edge will dull. Understanding this trajectory matters more than judging any single application.