Sanctions have become a default tool of hard diplomacy: What this implies for middle powers like India

Insurers and brokers, once confident in their ability to price episodic geopolitical risk, were forced into a near-continuous reassessment as sanction lists expanded to include not just firms, but entire fleets, flags and service providers. Compliance ceased to be a legal checklist and became a daily commercial hazard.

This has become a familiar pattern. Sanctions, once exceptional interventions by major powers, are now a routine feature of the global economic landscape.

Over the past decade, economic sanctions have quietly evolved from targeted tools into a standard instrument of statecraft. Financial restrictions, trade bans, asset freezes, export controls and increasingly also punitive tariffs are no longer deployed as last resorts. They are often the first response to geopolitical friction.

The consequence is a global economy in which trade flows, investment decisions and supply chains are shaped as much by foreign policy calculations as by price signals or comparative advantage.

Sanctions are typically justified by the countries imposing them as a decisive alternative to force. But this framing is misleading. The truth is that sanctions displace economic pain onto firms, consumers and third countries far removed from the original dispute. They disrupt contracts, distort markets and introduce long-term uncertainty, without necessarily altering state behaviour.

In effect, sanctions have become a substitute for strategy: visible, politically convenient and economically blunt. Unsurprisingly, their use has proliferated. What is acknowledged less is that sanctions rarely remain confined to their intended targets.

For middle powers such as India, this creates a structural challenge. Contemporary sanction regimes increasingly have extraterritorial reach. Primary sanctions restrict domestic actors; secondary sanctions penalize third-country firms for engaging with sanctioned entities. The result is the export of one country’s foreign policy preferences into the commercial decisions of others. Compliance is no longer about national law alone, but about navigating overlapping and often ambiguous external restrictions.

India has encountered this reality across sectors, from energy and fertilizers to defence supplies and shipping insurance. Earlier episodes, including the US imposition of tariffs of up to 50% on select Indian exports, demonstrated how rapidly geopolitical and trade disputes can translate into direct economic penalties.

Pricing models were disrupted, contracts renegotiated and investment plans deferred. More recently, the passage of a sweeping 500% tariff bill in the US, whether it is ultimately applied to India, has revived concerns about exposure to punitive extraterritorial trade measures.

Together, these episodes underscore a broader shift: sanctions, tariffs and trade restrictions are increasingly used as instruments of economic coercion, with spillover costs that India must absorb regardless of intent, alignment or behaviour.

India’s response to this environment has been neither confrontational nor compliant. Instead, New Delhi has pursued calibrated pragmatism. Trade volumes have been adjusted, payment mechanisms restructured, shipping and insurance arrangements redesigned—all to preserve supply continuity while limiting legal and financial exposure.

Rather than accepting sanctions as strategic diktats or escalating politically, India has treated them as commercial constraints to be managed. This recalibration has allowed it to protect core economic interests without being drawn into overt alignment or open defiance.

This approach is often misunderstood. It is sometimes framed as ambiguity, or even weakness. In reality it reflects India’s long-standing commitment to strategic autonomy, grounded in economic realism rather than ideological posture.

As a major but not dominant power, India cannot absorb the costs of rigid bloc politics. Nor does it possess the leverage to rewrite sanctions regimes designed elsewhere. Its overriding imperative is to preserve growth, stability and predictability—while retaining freedom of decision-making in an increasingly fragmented global order.

Sanctions also generate consequences that their architects rarely anticipate. Over time, they encourage alternative trade routes, opaque financial intermediaries and informal settlement mechanisms. Markets adapt—but often in ways that reduce transparency and increase systemic risk. As sanctions become normalized, so too do the distortions they introduce. The more frequently economic coercion is used, the weaker the incentives for compliance with the formal global trading system.

For India, the policy challenge is therefore how to limit Indian vulnerability to their spillovers. This requires diversifying suppliers, building redundancy in logistics and finance and maintaining flexibility in commercial relationships. It also demands sustained diplomatic engagement, not to seek exemptions, but to ensure that Indian economic interests are clearly understood, even when they are not prioritized.

Crucially, sanctions are unlikely to fade. As geopolitical competition intensifies, economic coercion will remain an attractive tool: visible, scalable and politically palatable. The real danger is not that sanctions will fail to impose costs, but that their overuse will erode trust in the global economic system itself.

In such an environment, strategic autonomy is not about isolation. It is about room to manoeuvre. India’s measured, interest-driven and quietly adaptive approach offers a realistic model for how middle powers can function in a world where sanctions are no longer exceptional—but expected. The future will not belong to those who impose sanctions, but to those who build economies resilient enough to operate despite them.

The author is president, Chintan Research Foundation.