FULL REPORT: Global Deep Dive – New US team examining sanctions’ impact will aim to reduce potential for new measures to disrupt global supply chains

North America 25 October 2022

FULL REPORT: Global Deep Dive – New US team examining sanctions’ impact will aim to reduce potential for new measures to disrupt global supply chains

Written by:
Anna Wilton
Image Credit: Zwiebackesser / Shutterstock

TorchlightTorchlight Predictions

  • Comprehensive analyses of past business impacts will improve clarity of initial sanctions announcements, reducing short-term ambiguity for businesses 
  • Greater clarity will reduce potential for confusion over compliance in commodity trading to drive up global prices 
  • Team’s work unlikely to ease burden financial institutions face in terms of ensuring sanctions compliance for now
Source: Castellum.AI via Statista

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The US Treasury’s Office of Foreign Assets Control (OFAC), which administers and enforces US sanctions, began recruiting on 22 September for a new two-person team of economists that will analyse sanctions’ impact on macroeconomic trends and financial markets. The team will be responsible for developing analysis that informs the design and implementation of sanctions programmes, including by identifying issues that may require pre-emptive mitigation measures. It will also monitor the collateral effects of sanctions once imposed.

The team’s creation comes as the US and its allies continue to roll out sanctions in response to Russia’s invasion of Ukraine in February. A joint alert published by OFAC, the Bureau of Industry and Security and the Department of State on 14 October noted that an estimated USD 300 billion of Russian Central Bank assets have been frozen since the invasion, in an effort to reduce Moscow’s ability to fund the conflict and withstand other sanctions. The memo also highlights that sanctions have restricted business with 80% of Russia’s banking sector assets, with around 1,500 new entities and individuals sanctioned in the last eight months, and 750 existing listings amended.


The Russia-Ukraine conflict will likely have prompted the new OFAC team’s creation, with the office’s recent update reflecting that the US will continue to use sanctions to downgrade Moscow’s industrial capacity and short- and long-term military capabilities, target Kremlin-linked elites, and financially isolate President Putin. Despite this, Russia’s importance as a global energy exporter, and the extent of trade links between Moscow and many US allies, mean Washington has also needed to consider the effects sanctions will have on third parties. This explains, for instance, the general license (GL) it issued to allow certain energy-related transactions with Russia’s central bank to continue. The US will anticipate similar challenges should it expand sanctions against other highly integrated global economies, such as China’s. OFAC will therefore hope integrating quantitative assessments of sanctions’ impacts into the decision-making process helps it to calibrate future programmes effectively.

The new team is likely to coordinate with international counterparts to detail the second- and third-order impacts of past sanctions, with a view to strengthening future due diligence efforts and minimising unintended consequences for global supply chains and businesses. Although the current conflict has likely acted as a trigger, the new OFAC team will help address long-standing issues previously highlighted by the sanctioning in 2018 of the oligarch Oleg Deripaska’s aluminium company, Rusal, and car company GAZ. The Treasury was forced to reverse these measures – although GAZ remains subject to secondary sanctions – after Rusal’s listing increased global aluminium prices by 20% and the designation of GAZ threatened to derail German firm Volkswagen’s joint venture with the company. It will hope to avoid such u-turns in the future, though it remains highly unlikely to inform foreign countries of new sanctioning decisions in advance.

Key Business Implications

The new team’s impact on business is likely to be minimal over the coming year, given that it will focus on assessment rather than recommendations or active due diligence. Moreover, it will be significantly under-resourced relative to the size of its task. The initial two posts will however plausibly be used as a proof of concept, with the aim of expanding the team in the longer term. 

Although the posts will examine the impact that changes in financial institutions and regulations have on sanctions’ effectiveness, there remains a significant gap in assessing the impact sanctions have on financial institutions’ operations. It is therefore highly unlikely that the burden of preventing transactions involving sanctioned jurisdictions, individuals or organisations will be eased for these institutions in the medium term. They may however be consulted more widely if the team expands in the longer term, as improving coordination would likely increase sanctions’ effectiveness while supporting OFAC’s aim of avoiding unnecessary roadblocks for business.

The most likely medium-term business impact will be a decline in the ambiguity businesses face in the immediate aftermath of sanctions announcements, and a reduction in the need for GLs. Deeper assessments of past impacts on business operations, for instance via analyses of issues that have previously necessitated the issuance of GLs, will likely improve the clarity of initial announcements. This could help limit supply chain disruptions and associated price increases linked to confusion over compliance in commodity trading. The US for instance issued GLs in March allowing firms controlled by Russian tycoon Alisher Usmanov – which include globally important nickel and copper interests – to continue trading despite sanctions on Usmanov and his other assets.

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