Do economic sanctions deter multinational companies from investing?

Economic sanctions have become an increasingly common tool of geopolitics, with governments using economic restrictions to exert pressure on rival states.

Sanctions have been imposed on a growing number of countries in recent years, most notably Russia following its invasion of Ukraine and the long running sanctions targeting Iran.

These developments highlight the growing intersection between geopolitics and international business. For multinational enterprises, political tensions are no longer simply a background condition but an active constraint shaping global strategy.

In our recent paper, we examine why some multinational enterprises continue to invest in countries subject to international sanctions.

Sanctions are designed to harm the local economy, by restricting trade and foreign direct investment, thus limiting access to vital inputs, raw materials, and technology.

Firms operating in sanctioned locations face constraints on financial transactions, import restrictions, and limits on technology transfers. This can lead to higher costs and lower sales.

Equally important is risk of reputational damage at home or in other countries if they are seen to violate international norms. This could result in them being shunned by the public.

Why do some firms defy sanctions?

Yet multinational enterprises do continue to operate in sanctioned locations. In some cases, firms even expand their presence as competitors withdraw.

At the time of writing, Western fashion brands Benetton, Quiksilver and Lacoste, have continued to maintain business relationships in Russia.

Meanwhile, a number of Chinese firms, such as the online retail giant Alibaba and Shanghai Fosun Pharmaceutical, have largely continued their commercial activities there.

This raises two important questions. First, are the firms operating in these markets marginal players that cannot compete successfully in more open and competitive environments?

And second, to what extent do institutions in a firm’s home country shape how it responds to sanctions and the risks associated with operating in these markets?

We drew on firm level financial and ownership data from the Orbis database of private corporate information. Combining this with information on sanctions from the Global Sanctions Data Base, we analysed which multinationals maintained subsidiaries in sanctioned economies and why.

We found that it was not just marginal players that continued to operate in sanctioned economies. On the contrary, multinationals with stronger resources and more extensive international experience were more likely to invest in these environments.

These capabilities help multinationals to navigate the uncertainty created by sanctions regimes and manage complex political and regulatory environments.

Does strong oversight influence overseas investment?

We also found that home country institutions matter. Multinationals headquartered in countries with stronger institutional oversight and greater public scrutiny were less likely to invest in sanctioned locations.

Strong domestic institutions appear to constrain multinationals from engaging in high-risk environments that may attract political criticism or regulatory attention.

Another notable result concerns multinationals from countries that are themselves subject to sanctions. These firms are more likely to maintain operations in other sanctioned economies.

In the current geopolitical environment, this raises interesting questions about how patterns of investment may evolve.

For example, the strengthening economic links between Russia and Iran in recent years reflect how sanctioned economies may become more interconnected.

However, this does not necessarily mean that those relationships will remain stable. As political events change, one wonders how they may decouple from one another.

Overall, the evidence suggests that sanctions reshape the landscape of international investment into and out of sanctioned countries, but do not eliminate it entirely.

Firms that remain active are typically those with strong resources, extensive international experience, and in some cases, institutional environments that place fewer constraints on their behaviour.

This reflects a broader shift towards a world in which international political economy is increasingly shaping corporate strategy.

Sanctions may reduce overall investment flows, but they can also create opportunities for firms that have the capabilities required to operate in complex and uncertain environments.

At the same time, international alliances appear to be less stable. This suggests that more firms and governments may have to navigate a more uncertain and transient sanctions environment.

• This article is based on the following study: Driffield, N., Estrin, S., Jones, C., Luong, H., (2026). Where angels fear to tread: FDI into sanctioned locations. Journal of International Management doi:10.1016/j.intman.2026.101352

Further reading:

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Nigel Driffield is Professor of International Business at Warwick Business School and Deputy Pro Vice Chancellor for Regional Engagement at the University of Warwick. He has conducted research and consultancy projects for the World Bank, European Commission, and several UK Government Departments including the Department for Business and Trade. He is also a member of The Productivity Institute.

Saul Estrin is Emeritus Professor of Managerial Economics and Strategy at the London School of Economics and Political Science.

Chris Jones is Professor of International Business at Aston Business School.

Ha-Phuong Luong is a Lecturer in International Business and Strategy at Henley Business School.

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