Figure 1. Google Trends worldwide searches for “geopolitics”

Source: Google Trends

As the world drives toward increasing fragmentation, for businesses with international exposure, understanding the geopolitical risks of the countries where they operate and incorporating geopolitics into their risk assessments has become an essential skill. The big challenge in measuring this risk is identifying how to measure geopolitics. What to look at? How to quantify “politics”? What are the signals that two countries are converging or diverging?

One of the proxies most frequently used by social scientists is the United Nations General Assembly (UNGA) voting alignment. It provides consistent long-term data and is simple to calculate, with only four possible options for all countries: yes, no, abstain, and not vote. The two most popular metrics, S-score and Ideal Point Distance (IPD), calculate the proximity slightly differently – particularly, the Ideal Point Distance works better in terms of acknowledging votes for repeating resolutions – but their performance is mostly similar.

UNGA voting patterns are useful for understanding trends and intertemporal changes. In 2022-2024, the US saw the highest level of the world’s alignment with it in decades, coinciding with the Russian invasion of Ukraine (Figure 2). In 2025, when the Trump administration started the trade war with the whole world, the alignment dropped to a new record low. Directly assessing the overall level of geopolitical alignment of individual countries through UNGA voting is tricky. Both measures (S-score and IPD) indicate that, on average, the world has been much more aligned with China than with the US over the past several decades. It does not, however, allow us to conclude that China has far greater geopolitical power than the US.

Figure 2. UNGA average voting alignment with the US and China

Source: UNGA, Bailey et al. (2017)

Another proxy to measure countries’ geopolitical proximity is needed. Fernández-Villaverde, Mineyama, and Song, in their 2024 National Bureau of Economic Research (NBER) Working Paper “Are We Fragmented Yet? Measuring Geopolitical Fragmentation and Its Causal Effect,” offer a complex proxy for geopolitical fragmentation (the inverse of proximity). They identify 16 indicators of trade, financial, mobility, and political fragmentation, which can be used to assess overall geopolitical fragmentation at both the global and country-pair levels (Figure 3).

Figure 3. Indicators of Geopolitical Fragmentation

Source: Fernández-Villaverde et al. 2024

NBER authors use a complex Dynamic Hierarchical Factor Model – a statistical model that allows the extraction and modeling of latent variables that drive the dynamics of observable indicators. Financial fragmentation began to rise steadily after the Global Financial Crisis, accelerating further in the late 2010s and following the Russian invasion of Ukraine. Trade fragmentation remained relatively low until the US-China trade war and, again, the Russian invasion of Ukraine – definitely one of the largest geopolitical events of recent decades. Mobility fragmentation has been gradually surging since 2015, while political fragmentation has been on the rise since the mid-2000s (Figure 4). They also find that global fragmentation was driven by both the US-EU and the Russia-China bloc dynamics – Western restrictive measures (sanctions, trade restrictions, etc.) and Sino-Russian rapprochement may have contributed to it.

Figure 4. Geopolitical Fragmentation Pillars

Source: Fernández-Villaverde et al. 2024

Estimating the impact of 24 major geopolitical shocks, both positive (e.g., the WTO’s creation) and negative (e.g., 9/11), the authors provide evidence that fragmentation and globalization events significantly affect economic growth, industrial production, fixed investment, and stock prices. Also, they estimate the industry-level impact of geopolitical fragmentation on OECD countries and find that some sectors are more resilient to shocks, particularly agriculture, forestry, fishing, as well as the public sector (administration, defense, education, etc.). Manufacturing, trade, finance, and insurance, on the contrary, are the most prone to these shocks (Figure 5).

Figure 5. Geopolitical Shocks Sectoral Impact

Source: Fernández-Villaverde et al. 2024

Geopolitics is on the rise, and no businesses with international exposure can ignore it. Firms have to manage their risks and navigate complex, fast-changing, and often conflicting regulations. On top of that, unforeseen geopolitical shocks, both positive and negative, cause disruption and frequently open new opportunities. Geopolitical risk assessment is the key consideration that enables companies to prepare for and withstand shocks.

Helpful insights:

• Industries are impacted by geopolitical shocks differently; some are less prone to them

• A broad set of bilateral economic and political indicators map the direction of relations between countries

• Negative shocks hit immediately; positive shocks create slower long-term positive impact

• Countries outside the major powers (US, EU, China, Russia) frequently enjoy the benefits of global power competition that mitigate the negative shocks

Sources:

Bailey, Michael A., Anton Strezhnev, and Erik Voeten. “Estimating Dynamic State Preferences from United Nations Voting Data.” Journal of Conflict Resolution 61, no. 2 (2017): 430–456. https://doi.org/10.1177/0022002715595700.

Fernández-Villaverde, Jesús, Tomohide Mineyama, and Dongho Song. “Are We Fragmented Yet? Measuring Geopolitical Fragmentation and Its Causal Effect.” NBER Working Paper No. 32638. June 2024. https://doi.org/10.3386/w32638.

Google Trends. “Explore: geopolitics.” Accessed August 19, 2026. https://trends.google.com/explore?q=geopolitics&date=all&geo=US.

Signorino, Curtis S., and Jeffrey M. Ritter. “Tau-b or Not Tau-b: Measuring the Similarity of Foreign Policy Positions.” International Studies Quarterly 43, no. 1 (March 1999): 115–144. https://doi.org/10.1111/0020-8833.00113.

United Nations Dag Hammarskjöld Library. “General Assembly Voting Data Compilation, 1946–2025.” UN Digital Library. Accessed August 19, 2026. https://digitallibrary.un.org/record/4060887?ln=en#files.

World Economic Forum. “Davos 2026: Here Are 5 Key Takeaways of Geopolitics.” January 20, 2026. https://www.weforum.org/stories/geo-economics-and-politics/geopolitics-took-centre-stage-davos-2026-5-key-takeaways/.

Figure 1. FTO/SDGT designations (SDN list)

Source: OFAC

The enforcement of sanctions has also been growing over the years. From 2000 to 2020, according to OFAC’s Terrorist Assets Reports (only available through 2020), the total amount of funds blocked under three major terrorism-related programs grew from $7 million to $63 million (Figure 2), and, given the surge in designations after 2020, one can easily argue the following years might have led to further growth in the blocked funds amount. At the same time, about 36% of the asset freeze stems from Hizballah-related designees, who are solely responsible for nearly $23 million in blocked funds.

Figure 2. Cumulative blocked funds relating to SDGT, SDT and FTO programs (end of year)

Source: OFAC

Unfortunately, this figure alone does not tell us much about whether these sanctions worked. Scholars have studied interstate sanctions for decades, and their findings are not very promising – the most optimistic estimate of sanctions’ success rate was reported by Morgan et al. (2023), which found an average rate of 42%. One of the core caveats is defining “success”. It is naturally affected by the desired outcome of sanctions. If sanctions are imposed to stop the war – which they rarely do – it is a much more complicated task to achieve compared to a smoother goal, such as the release of one prisoner.

Sanctions against FTOs resolve this caveat, as the KPI is clear – whether FTOs reduce the number of their attacks as a result of sanctions. This question is studied by Jo et al. (2026), who analyze 80 groups on the US FTO list for the period 1997-2019, dividing them into three waves:

• initial designations (1997–2001) – 38 FTOs;

• second generation (2001-2011) – 28 al Qaeda associates;

• third generation (2011-2019) – 14 Islamic State (IS) affiliates.

Of course, financial sanctions are often accompanied by military actions and other factors, such as host-government enforcement and internal organizational changes. By controlling for these factors, the authors of the article identify instances in which sanctions themselves led to a decrease in terrorist activity.

Obviously, FTOs differ from one another, and averaging them will not yield a reliable finding. Money is essential for terrorism. An FTO sponsored by a single actor (whether a state or a private donor) and a group that relies on profits from criminal activities would have different availability to continue financing their attacks. To divide FTOs into reasonable categories, the authors of the article analyze the financial adaptability of terrorist groups by assessing their autonomy (direct control over resources), diversification (number of funding sources), and invulnerability (reliance on the global financial system or informal channels).

In the first generation of FTOs (1997-2001), only 4 out of 38 groups exhibited a high level of financial adaptability, resulting in a limited number of adaptation attempts (15 out of 38) and a reduction in attacks in 27 cases (71%). Sanctions themselves were identified as a factor in success in 4 cases. In the second and third waves of designations, although FTOs limited the number of attacks in 50-60% of cases, none of those reductions were attributable to sanctions. This was caused by the increase in the FTOs’ financial adaptability. Either terrorists quickly adjusted to a new environment after the first wave was caught off guard, or they were simply different in their structure and financial base.

The authors of the article conclude with a conservative estimate that the sanctions success rate was only 5% in 1997-2019. All successful cases were observed in 1997-2001 and were found only among FTOs with low or medium financial adaptability. Loosening restrictions and viewing the host government's actions as an indirect effect of sanctions increase the success rate to 35% (28 groups out of 80).

The key factor, however, is financial adaptability. FTOs with diversified portfolios “usually weather sanctions unscathed”, as per Jo et al. And this is especially important with the new wave of FTO designations. While some targets, such as Muslim Brotherhood groups and Iran-backed militias, might be limited in their financial adaptability, 2025-2026 designations are largely focused on cartels and cartel-adjacent groups that, by design, have a greater ability to adjust to sanctions and find alternative ways to move funds – both through unofficial channels and through money laundering approaches (structuring, TBML, shell/fronts, etc.).

Helpful insights

• When an FTO is designated, and you have frozen funds – the job isn’t done; it only begins

• Assessment of an FTO’s financial adaptability is the assessment of the risk for your bank

• Reminder about heightened risks with FTOs (good discussion by Morrison Foerster): harsher criminal penalties, broader jurisdictional reach than OFAC sanctions, no interpretative guidance, and higher civil litigation risks

Sources:

State Department. “Foreign Terrorist Organizations.” United States Department of State. https://www.state.gov/foreign-terrorist-organizations/.

OFAC. “Specially Designated Nationals and Blocked Persons List (SDN List).” U.S. Department of the Treasury. Accessed August 19, 2026. https://sanctionslist.ofac.treas.gov/Home/SdnList.

OFAC. “Counter Terrorism Sanctions.” U.S. Department of the Treasury. Accessed August 19, 2026. https://ofac.treasury.gov/sanctions-programs-and-country-information/counter-terrorism-sanctions.

U.S. Department of the Treasury. “Treasury Sanctions Turkish Officials with Leading Roles in Unjust Detention of U.S. Pastor Andrew Brunson.” Press Release, August 1, 2018. https://home.treasury.gov/news/press-releases/sm453.

Jo, Hyeran, Brian J. Phillips, and Joshua Alley. “When Do Sanctions on Terrorist Groups Work?” Security Studies 35, no. 2 (2026): 241–274. https://doi.org/10.1080/09636412.2026.2619491.

Morrison Foerster. “FTO Designations Heighten Risks for Companies Operating in Latin America / Las designaciones de FTO aumentan los riesgos para las empresas que operan en América Latina.” May 5, 2025. https://www.mofo.com/resources/insights/250505-fto-designations-heighten-risks-for-companies-operating.

Ironically, that day I was just a PhD candidate in a room of prominent professionals, but I was 100% sure that I knew the answer to this question. With research interests in sanctions evasion and, more broadly, third countries’ strategies and choices regarding compliance or circumvention of sanctions, I had no chance of missing the book “Busted Sanctions” by Professor Bryan Early of the University at Albany. And this book has a precise answer to the question. His answer to the eternal question of why sanctions fail – success rate estimates vary from merely 4% (Pape, 1997) to around 35% (Hufbauer et al., 2007, Morgan et al., 2014) – is not only the poor design of sanctions or weak implementation; Early states that there is a significant contribution from third countries and provides substantial supportive evidence to his argument.

Busted Sanctions

Early identifies two major mechanisms of sanctions busting – aid-based and trade-based. Aid-based sanctions busting is driven by ideology or political interests and conducted at the government level, while trade-based sanctions busting is done by individual firms and motivated by their commercial interests, which makes it a core concern for compliance professionals. By analyzing 96 US sanctions episodes in 1950-2002, Early shows that the most likely sanctions busters are firms from countries with large open economies that have pre-existing trade ties to the target of sanctions and are geographically proximate to it.

Two interesting findings deserve more careful consideration. First, the geographical proximity is twofold. On the one hand, the closer the distance to the target of sanctions, the higher the probability of being involved in circumvention. At the same time, countries that share a physical border with a sanctioned state are more likely to circumvent sanctions through illicit trade, making it less traceable to external analysts. In practice, this means that the absence of official connections or transactions with businesses from a sanctions target, and even official country-level data showing no change in sanctioned goods flows, cannot completely eliminate sanctions risk.

The second important finding is that US allies are twice as likely to circumvent US sanctions as other countries. According to Early’s calculations, in 1950-2002, firms from Germany (West Germany in pre-1990), Japan, Italy, France, and the UK were responsible for almost half of US sanctions circumvention episodes. He digs into case studies of Iran-related sanctions busting and shows that US allies such as Australia, Japan, the Netherlands, France, Italy, and Germany saw increases in their exports to Iran in the 1980s and 1990s ranging from twofold to sixfold.

Moreover, Early provides a detailed study of several waves of US sanctions against Iran and the circumvention of these sanctions through the transshipment of sanctioned goods via the port of Dubai. He illustrates that the Defense Cooperation Agreement between the US and UAE, signed in 1994, significantly intensified the re-export of US goods to Iran through Dubai – even based on the official data, ignoring the smuggling of dual-use goods.

Another insightful case study is the Iraqi invasion of Kuwait and consequent UN sanctions. Emirati traders utilized the established networks and smuggling routes to run goods to Iraq via Iranian waters, even as the UAE's federal government was contributing troops to the US-led coalition against Saddam Hussein. After the Gulf War, when enforcement attention faded, the illegal traffic reversed into oil smuggling out of Iraq via Iran to Dubai and Fujairah, with overall flows out of Iran reaching an estimated 10,000 barrels a day by 1994.

Why do closer ties with the US lead to more disruptive behavior when it comes to sanctions? Early argues that one of the important factors is that the alliance with the US actually gives other countries a kind of protection, a shield against US coercive measures, as the reputational costs for the US would be greater than the loss from flawed sanctions. While he bases this conclusion on the UAE case, the same underlying alliance-shield logic could be easily extended to the Iran-Libya Sanctions Act (ILSA) of 1996, which never really triggered any sanctions against European companies – even the $2 billion investment into a gas field by Total SA of France, Gazprom of Russia, and Petronas of Malaysia received a waiver. On top of that, other foreign investments agreed to in Iran’s energy sector were estimated to total $11.5 billion, although penalties were never imposed.

Finally, to protect EU businesses involved in legitimate trade, the EU introduced the Blocking Statute, which prohibited European persons from complying with foreign sanctions and signaled an important first step in the divergence of legislation between the US and EU. In recent years, this trend has intensified: the US withdrew from the JCPOA in 2018, the EU updated the Blocking Statute, and the mismatch in approaches to Russian sanctions leaves firms to navigate multiple legal frameworks.

Helpful insights

• Allied-country origin is not a de-risking factor

• Shared border creates pre-conditions for illicit trade

• Sanctions evasion background is a strong risk indicator and a reason for scrutiny

• Contractual clauses become one of the most crucial sanctions risk controls the company can introduce

• Diverging sanctions legislation and blocking statutes create conflicting legal obligations across jurisdictions, giving rise to a new compliance risk

Sources:

Clawson, Patrick. "Sanctions Relief for Iran Without Congressional Approval." The Washington Institute, n.d. Accessed July 26, 2026. https://www.washingtoninstitute.org/policy-analysis/sanctions-relief-iran-without-congressional-approval.

Early, Bryan R. 2015. Busted Sanctions: Explaining Why Economic Sanctions Fail. Stanford University Press.

Hufbauer, Gary Clyde, Jeffrey J. Schott, Kimberly Ann Elliott, and Barbara Oegg. Economic Sanctions Reconsidered. 3rd ed. Washington, DC: Peterson Institute for International Economics, 2007.

Katzman, Kenneth. "The Iran-Libya Sanctions Act (ILSA)." CRS Report for Congress, Order Code RS20871. Updated August 8, 2006.

Morgan, T. Clifton, Navin Bapat, and Yoshiharu Kobayashi. "Threat and Imposition of Economic Sanctions 1945–2005: Updating the TIES Dataset." Conflict Management and Peace Science 31, no. 5 (2014): 541-558.

Pape, Robert A. 1997. "Why Economic Sanctions Do Not Work." International Security 22, no. 2: 90-136.

Other Central Asian and South Caucasus countries, widely recognized as transshipment hubs, were not directly sanctioned but eventually adjusted their re-export practices to align more closely with Western sanctions. Georgia, which shares a border with Russia, was actively involved in the re-export of luxury cars from the US and the EU to Russia in 2022-2023, after the G7 and the EU imposed a ban on their supply to Russia. In the summer of 2023, shortly after the EU introduced the 11th sanctions package, Georgia banned the re-export of cars to Russia. According to Georgian official data, it led to a dramatic drop in car sales to Russia – from 1,054 in July to 85 in August, 26 in September, and to almost zero afterward.

Did Western cars stop reaching Russian customers? Not really. Sanctions evaders employed several ways to avoid scrutiny by Georgian and Western authorities. The first was a “grey” channel which was discovered by a Georgian journalist Ia Asatiani. She found that cars imported from the US and the EU were transported to the Georgia-Russian border without any registration and then transferred directly across the border without customs clearance.

Another channel, analyzed by Vakhtang Partsvaniya and Erekle Pirveli from Caucasus University in Georgia, is not “grey” in the common sense, as it involves the legitimate export of cars to Armenia, Kazakhstan, and Kyrgyzstan – members of the Eurasian Economic Union (EAEU) along with Russia. Like the EU, it establishes a customs union, meaning goods face customs controls only at the outer border and can move freely between countries afterward, making it a perfect route for sanctions evasion. Borrowing techniques from money launderers, sanctions evaders continue supplying cars to Russia, layering them through “fourth” countries.

Before digging into the data and Partsvaniya and Pirveli analysis, a quick note on the geographical rationale for Georgia to be the first point of Western cars’ entrance to the region. Being the most Western country in Central Asia and the South Caucasus, Georgia is the only state with access to the Black Sea, while other countries are either landlocked or have ports only on the Caspian Sea, which is technically a lake and doesn’t have access to an open ocean. For car shipments, Georgia naturally became the transshipment hub for other countries in the region long before the West implemented sanctions against Russia. However, since 2022, this trend has intensified significantly, raising reasonable suspicions about its business rationale.

Indeed, while sales to Russia dropped tenfold within the first month after the Georgian ban on car re-export to Russia, supplies to Kazakhstan and Kyrgyzstan expanded from 4,917 in July to 6,047 in August and to 6,900-7,000 in September-October 2023. In 2024-2025, the average export of cars to Kazakhstan and Kyrgyzstan was more than 7,000 cars per month – almost 10 times higher than in any other year before 2022, as shown in Figure 1.

Figure 1. Georgian exports of cars (volume)

Source: National Statistics Office of Georgia

In dollar equivalent, the change is even more impressive. Average monthly exports from Georgia to Kazakhstan and Kyrgyzstan in 2024-2025 exceeded 170 million USD, reflecting more than a 30-fold increase over the pre-2022 period (see Figure 2 below). Surprisingly, Kyrgyzstan appeared to focus on much more expensive cars – if in 2021-2022 the average price of cars exported from Georgia to Kyrgyzstan was about 0.7 of those going to Kazakhstan ($8.3k vs $12.3k), in 2025-2026 this ratio grew above 2.1 ($36.6k vs $17k).

Figure 2. Georgian exports of cars (value)

Source: National Statistics Office of Georgia

Could it be that the demand for cars in Central Asia grew significantly in recent years due to factors unrelated to anti-Russian sanctions – for instance, economic development, partially stimulated by Russian migration in 2022? Not impossible. Partsvaniya and Pirveli test the impact of anti-Russian sanctions on Georgian car exports to the EAEU, controlling for the influence of changes in GDP, inflation rate, and currency exchange rate to account for various mechanisms that can explain demand fluctuations. They find that EAEU members have increased their car imports from Georgia much more than from other Georgia trade partners. An interesting finding outlined by Partsvaniya and Pirveli is that this impact is especially significant in USD terms, relative to volume. They argue that this outcome reflects the elevated logistics and transportation costs associated with rerouting cars through several countries, leaving only luxury-car consumers able to bear them.

Helpful insights

• Actual end-user verification is indispensable – just another reminder of what has been known to AML professionals long ago

• “No Russia” clause – a contractual commitment barring re-export to Russia or re-export-adjacent use – is essential when trading with EAEU

• Trade bloc membership with a sanctioned country or other form of customs relief is a red flag requiring elevated scrutiny

• Surging per-unit cost of what has been a regular trade activity, especially when it doesn’t match other trade directions’ dynamics, must be treated as suspicious

Sources:

Council of the European Union. Council Regulation (EU) No 833/2014 of 31 July 2014 Concerning Restrictive Measures in View of Russia's Actions Destabilising the Situation in Ukraine. Consolidated text, July 24, 2026. OJ L 229, 31.7.2014, p. 1. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02014R0833-20260724.

Asatiani, Ia. “Russia’s ‘Auto Heaven.’” iFact. February 13, 2024. https://ifact.ge/en/sanctioned-cars/

National Statistics Office of Georgia. “National Statistics Office of Georgia.” Accessed July 14, 2026. https://www.geostat.ge/en

Partsvaniya, Vakhtang, and Erekle Pirveli. “Western Sanctions Evasion through Third Countries: The Case of Sanctioned Cars Re-export to Russia.” NISPAcee Journal of Public Administration and Policy 17, no. 2 (Winter 2024/2025): 80–108. https://reference-global.com/article/10.2478/nispa-2024-0014