For decades, geographic diversification was one of the foundations of sound portfolio management. Spread your exposure across enough regions and you’d smooth out the bumps. That logic still holds, but it’s become considerably harder to execute in a world where entire markets can be effectively locked overnight.
The use of economic sanctions by the US and EU has grown sharply since 2014, and accelerated dramatically following Russia’s invasion of Ukraine in 2022. Investors who had positions in Russian equities, bonds, or even commodities linked to Russian producers found themselves unable to trade, transfer, or in some cases value those assets. Some funds are still holding frozen positions years later.
Get the full breakdown below, from how sanctions affect different asset classes to what investors can do to stress-test their exposure.
What Happens When Assets Get Frozen
When a government imposes sanctions on a country, sector, or individual entity, the consequences for investors aren’t always immediate, but they tend to be severe. Securities held in sanctioned jurisdictions can become untradeable. Dividends may stop flowing. Custodians and clearing houses refuse to process transactions, leaving investors holding assets they can neither sell nor accurately price.
The Russian market freeze of 2022 was the starkest recent example. Western investors saw billions wiped from portfolios not through market movements but through access restrictions. Index providers removed Russian stocks from benchmarks almost overnight, forcing passive funds to write down holdings to zero.
Beyond direct market exposure, sanctions create second-order problems that are harder to anticipate. A manufacturer sourcing components from a sanctioned country may find its supply chain disrupted. A company with significant revenue from a restricted market will face earnings pressure. Both can hit portfolio performance even for investors who thought they had no direct exposure to the region in question.
Commodity Markets and the Ripple Effect
Sanctions don’t just affect equity and bond markets. Commodity prices are often where the broader economic impact becomes most visible, and most immediately felt.
Russia is a major exporter of oil, natural gas, wheat, palladium, and fertiliser. EU sanctions and the G7 oil price cap introduced in late 2022 reshaped global energy flows, pushing European buyers towards more expensive LNG and accelerating relationships with suppliers in the Middle East and West Africa. Those shifts pushed up costs for energy-intensive industries across Europe, with knock-on effects for corporate earnings in sectors most investors hold as core portfolio positions.
Agricultural commodities told a similar story. The disruption to Ukrainian and Russian grain exports triggered a spike in wheat and sunflower oil prices that rippled through food manufacturers, supermarkets, and emerging market economies dependent on cheap food imports. Investors in consumer staples and agribusiness funds felt this even if they had no direct Russia or Ukraine exposure at all.
How a Wealth Manager Can Help You Stress-Test for Geopolitical Risk
This is where the complexity of sanctions-related risk makes a strong case for professional investment oversight. Identifying and mitigating geopolitical exposure isn’t simply a matter of avoiding markets on a sanctions list. It requires looking at supply chains, revenue geography, commodity dependencies, and counterparty relationships across an entire portfolio.
Working with Rathbones wealth managers gives investors access to a team that actively monitors geopolitical developments and their potential impact on client portfolios. That includes stress-testing holdings against different sanction scenarios, assessing indirect exposure through funds and multi-asset strategies, and adjusting allocations where the risk profile has shifted.
For high-net-worth individuals and families with diverse portfolios spanning multiple asset classes and geographies, this kind of active oversight has become increasingly valuable. The questions investors need to be asking go well beyond “do I own any Russian stocks?” They need to consider where their funds invest, what their underlying companies depend on, and how quickly those dependencies could become a problem if the geopolitical picture changes.
Geographic Diversification Still Matters, but the Map Has Changed
None of this means geographic diversification is redundant. It remains one of the most effective tools for managing risk. But the map of what counts as a “safe” or accessible market has changed significantly over the past decade, and it will keep changing.
Emerging markets that once looked attractive on yield grounds now carry elevated sanctions risk. Some frontier markets are simply off the table for investors with US or EU institutional relationships, because even indirect exposure to sanctioned entities can trigger compliance problems. Meanwhile, markets in Latin America, parts of Asia, and parts of the Middle East have picked up flows that previously went to Russia or China-linked investments as geopolitical tensions with Beijing have also grown.
Investors should also keep an eye on secondary sanctions, which allow the US in particular to penalise companies in third countries that do business with sanctioned states. A company listed in a seemingly neutral jurisdiction can still become a compliance liability if it maintains significant trading relationships with a sanctioned party.
The Big Picture
Sanctions have moved from a niche diplomatic tool to one of the most consequential variables in global investment strategy. The risks they create, frozen assets, disrupted supply chains, commodity price shocks, and compliance exposure, don’t always show up in standard risk models.
Building a portfolio that can withstand geopolitical shocks now requires the same rigour that investors have always applied to interest rate or currency risk. The earlier that analysis starts, the better placed investors will be when the next round of restrictions lands.
Disclaimer: The value of your investments and the income from them may go down as well as up, and you could get back less than you invested. Past performance should not be seen as an indication of future performance
