The annexation of Crimea in 2014 and the invasion of Ukraine in 2022 by Russia triggered the expansion of unilateral sanctions, particularly by the EU and the US. These sanctions, designed to exert political and economic pressure, had significant repercussions for global commerce, extending their effects beyond sanctioning and sanctioned states to third-country nationals. In a globalized economy, no actor remains immune from the disruptions caused by armed conflict and sanctions. This reality raises complex questions for arbitration, especially in third States such as Türkiye, regarding the enforceability of contracts, applicability of foreign mandatory rules, and potential enforcement challenges.
In this article, we will briefly address the notion of unilateral sanctions and, in particular, the sanctions regime imposed by the EU arising from the Russia–Ukraine conflict. Following this, we will delve into the possibility of applying sanctions rules as overriding mandatory provisions in arbitral proceedings seated in Türkiye and when Turkish law governs the merits of the dispute.
I. General Overview of Unilateral Sanctions
Under international law, no definition of unilateral sanctions exists. Broadly, they can be explained as the restrictive measures that are imposed by a single State or group of States acting outside the framework of the United Nations, with the stated aim of compelling another State, entity or individual to change certain policies or behaviours.[1]
Generally, the purpose of the sanctions is to compel or at least pressure a State, organization, or individual to alter their policies, or to signal the Sanctioning State’s disapproval of those policies.[2] Beyond this general function, sanctions may also advance broader foreign policy and national security objectives, such as promoting human rights, deterring acts of use of force, or preventing the proliferation of weapons.[3]
There are two types of sanctions depending on the targeted entity. The first group of sanctions is ‘primary’ sanctions, which directly restrict trade, financial flows, or other economic transactions with the target. The second group is ‘secondary’ sanctions, aimed at penalizing third parties who interact with the target in ways that might undermine the primary restrictions. Sanctions may also differ in breadth: they can be selective, covering only specific sectors or transactions, or comprehensive, cutting off nearly all economic relations. Moreover, they may apply broadly at the country level or be narrowly tailored against individuals.[4]
As jurisdictional questions regarding secondary sanctions on third parties remain unsettled, States impose them broadly to enforce their sanctions regime effectively. Hence, entities worldwide closely monitor the sanctions regimes of different States to avoid becoming subject to such measures.
Recently, the interplay between sanctions and arbitration has become a highly debated topic, most recently following the EU’s adoption of its 18th sanctions package against Russia on 18 July 2025. Notably, beyond targeting Russia’s energy, finance, and defence sectors, the 18th package included provisions addressing international arbitration, to prevent sanctioned Russian investors from undermining EU sanctions through arbitral claims.
II. Broad Scope of Sanctions
In order for the provisions of the law of a third state to apply as overriding mandatory provisions despite not being part of the law applicable to the dispute or the law of the seat, first, these provisions under the national law under which they are enacted shall apply to the specific condition no matter what the law is chosen by the parties.[5] Indeed, the scope of the EU and US sanctions are broad enough to satisfy these conditions. For the sake of simplicity, we will only focus on few examples from EU sanctions. For instance, “no re-export to Russia” clauses imposed by EU under the Article 12g of the Regulation 833/2014 on contracts with persons operating outside the EU indicates the intention to apply the relevant regimes even in the cases where the parties have a limited connection to EU. Indeed, the contractual provisions provided in the EU guidelines brings a contractual duty on the non-EU contractual partners to make efforts to prevent the circumvention of the sanctions and “maintaining an adequate monitoring mechanism to detect conduct by any third parties further down the commercial chain, including by possible resellers”.[6]
Sanction regimes not only shape substantive obligations but also impose procedural barriers on sanctioned entities seeking to bring claims or enforce arbitral awards. Under the EU’s 18th sanctions package, Member States must refuse recognition and enforcement of awards or judgments obtained by sanctioned Russian or Belarusian investors, contest such attempts on public policy grounds,[7] and refrain from assisting in related enforcement. The package affirms sanctions compliance as fundamental public policy and introduces a damages recovery mechanism allowing an EU Member State to bring a claim in its national courts to recover damages or litigation costs resulting from sanctions related arbitration initiated by Russian investors with the option to target not only the investor but also its owners or controllers,[8] thereby codifying that relief granted to sanctioned investors is incompatible with EU law. In parallel, Article 11 of Regulation 833/2014, the “no claims clause,” prevents satisfaction of claims arising from contracts impeded by sanctions.
Most recently, in view of an application to set aside an arbitral award (case C-802/24, NV Reibel v JSC VO Stankoimport), the Svea Court of Appeal has requested preliminary ruling of the Court of Justice of European Union (“CJEU”) on whether disputes affected by Article 11 remain arbitrable and whether arbitral awards inconsistent with that provision must be set aside on public policy grounds.[9] In that case, the arbitral tribunal proceeded to the merits and applied the said provisions, stating that the purpose of Article 11 was to prevent the performance of prohibited transactions, and that this article did not target the refund of the money paid for the equipment that was not supplied.[10] The prospective CJEU ruling on this issue is not only significant for the set aside of the awards in EU Member States and arbitrability of the underlying disputes, but also may be relevant for the arbitral tribunals seated in third States evaluating the applicability of these rules as overriding mandatory provisions.
To sum up, national courts of third States and arbitral tribunals seated in those jurisdictions are likely to face legal questions regarding the applicability of sanction regimes as overriding mandatory provisions of foreign law even when such laws are not part of the law applicable to the merits of the dispute.
III. Application of Overriding Mandatory Provisions in the Arbitral Proceedings
In Turkish law, the Law No. 5718 on International Private Law and Procedural Law (“IPLPL”) regulates the applicability of overriding mandatory provisions of the third states, whereas International Arbitration Law No. 4686 does not provide for the possibility to apply the overriding mandatory provisions.
However, this does not mean that application of overriding mandatory provisions is not possible in arbitral proceedings.[11] Some authors stated that applicability of overriding mandatory provisions conflicts with the principle of contractual freedom and consensual nature of the arbitration and thus a balanced approach must be followed by the tribunals when considering the interest of the regulatory discretion of the states and interests and contractual freedom of the parties.[12] Other authors pointed out that arbitral tribunals also have an adjudicatory function and they must apply certain imperative norms regardless of the will of the parties.[13]
Article 31 of the IPLPL, inspired by Rome Convention (1980) Article 7, shall apply to these disputes. Article 31 reads as follows:
“When applying the law governing the relationship arising from the contract, the overriding mandatory rules of a third country may be given effect if they are closely related to the contract. The purpose, nature, content, and consequences shall be taken into account while evaluating whether these rules shall be given effect or applied.”
Therefore, for the application of the overriding mandatory provisions, they must be closely connected to the contract, while the purpose, nature, content and consequences of such provisions must also be evaluated. This provision provides a discretion for the arbitral tribunals to adopt the most appropriate approach on a case-by-case basis.
Although sanctions are intended to have a broad scope and a purpose of affecting third parties, it is possible to argue in certain cases that these rules cannot be applied as overriding mandatory provisions of law because they are not closely connected to the dispute at hand. If not deemed closely connected, alternative would be relying on the factual situation created by these rules and bring claims and defences under the other institutions of the applicable law such as force majeur, hardship, impossibility etc. Indeed, on several occasions, arbitral tribunals adopted this approach.[14]
Additionally, the elements pertaining to the nature and content of the contractual relationship such as whether the contract is related to the ongoing war efforts or it has solely a private business relationship may be a factor to determine to which extent these rules can be given effect.
The possible places of enforcement may also play a role because it is widely accepted that arbitral tribunals have a duty to render an enforceable award.[15] It has been stated that if the only possible places of enforcement are in the Sanctioning States, arbitral tribunals may be more inclined to consider the provisions of the sanctions as overriding mandatory provisions.[16]
However, this multilocal approach has also been criticized on different grounds stating that determining the possible enforcement jurisdictions prior to an arbitral decision may be burdensome and risk the predictability and efficiency of the arbitral proceedings.[17] Some authors argue that rather than embracing a multilocal approach, the arbitral tribunal must follow a transnational approach. Supporters of this approach state that when facing public policy rules, international arbitral tribunals will generally only enforce mandatory norms they deem to be truly international public policy rules, and decide on whether foreign mandatory rules are part of the truly transnational public order by assessing their ‘nature and purpose’, which should share universal values widely recognized by the international community.[18]
Sanctions imposed by the UN and other international organizations may arguably fit into this category;[19] however, it is less clear whether unilateral sanctions can be interpreted as reflecting the transnational public policy.[20] Indeed, the measures solely aiming to protect the interests of a particular State, rather than an international public order concern, should not be applied as overriding mandatory provision.[21] Authors argue that unilateral sanctions do not only form part of the national laws, but they also qualify as the counter-measures seeking to put an end to the Russian aggression in Ukraine, and thus their application as overriding mandatory provisions is necessary in the third States.[22]
However, the wide scope of comprehensive sanctions had been also criticized as not being proportionate and affecting the rights of the third parties.[23] The similar criticisms were raised against the sanctions imposed by the US to Iran.[24] The French Court of Cassation rejected the applicability of the unilateral sanctions imposed to Iran by the US, on the ground that they cannot be regarded as a manifestation of an international consensus, the lawfulness of which were disputed by both France and the EU, and held that they were not part of French international public policy.[25] Of course, the reaction of the international community to Russia is closer to the uniformity compared to the Iranian example.[26] However, the scope of the sanctions, their extraterritorial effect and proportionality is much debated from the human rights perspective. Thus, there is no single answer to the question of applicability of unilateral sanctions as overriding mandatory provisions. Arbitral tribunals may find themselves having to strike a delicate balance between several competing considerations, such as between the enforceability of arbitral awards and the parties’ autonomy to make a choice of law; between regulatory powers of sovereign states and the rights of the individuals to pursue their claims.
IV. Concluding Remarks
Although there are reasonable grounds to apply the foreign unilateral sanctions as overriding mandatory rules, especially when the dispute at hand is closely connected to these provisions, the legal questions surrounding this issue do not have a straightforward answer. Arbitral tribunals have a discretion to decide on whether the dispute is closely connected to the sanction rules and whether their application is compatible with public policy considerations. The future of the application of unilateral sanctions is likely to remain a controversial issue in near future.
[1] Matthew Happold and Paul Eden (eds.), Economic Sanctions and International Law, Bloomsbury, 2016, p. 71.
[2] Rainer Hofmann, “Sanctions”, Oxford Public International Law (EPIL),2011, https://opil.ouplaw.com/display/10.1093/law:epil/9780199231690/law-9780199231690-e1521?rskey=dmddqJ&result=3&prd=OPIL, accessed 27 August 2025.
[3] Sarah Krulikowski, “Economic Sanctions Overview”, United States International Trade Commission, https://www.usitc.gov/publications/332/executive_briefings/ebot_economic_sanctions_overerview.pdfhttps://www.usitc.gov/publications/332/executive_briefings/ebot_economic_sanctions_overview.pdf, March 2024, accessed 27 August 2025.
[4] Id.
[5] European Commission, “Commission proposes 15th package of sanctions against Russia”, European Commission Press Corner, 18 July 2025, https://ec.europa.eu/commission/presscorner/detail/en/ip_25_1840, accessed 27 August 2025.
[6] EU Council Regulation no. 833/2014 dated 31 July 2014, art. 12g; European Commission Directorate General for Financial Stability, Financial Services and Capital Markets Union, “No re‑export to Russia clause”, European Commission Finance Publications, 18 December 2024, https://finance.ec.europa.eu/publications/no-re-export-russia-clause_en, accessed 27 August 2025.
[7] Official Journal of the European Union, “Official Journal L series daily view – 19 July 2025”, EUR-Lex, 19 July 2025, https://eur-lex.europa.eu/oj/daily-view/L-series/default.html?&ojDate=19072025, accessed 27 August 2025.
[8] Theodore Hanna, “Targeting Russia and Belarus Through Investment Arbitration: The EU’s 18th Sanctions Package”, OpinioJuris, https://opiniojuris.org/2025/08/27/targeting-russia-and-belarus-through-investment-arbitration-the-eus-18th-sanctions-package, accessed 29 August 2025.
[9] Court of Justice of the European Union, Case No. C-802/23, dated 18 July 2025.
[10] Joint Stock Company Foreign Trade Enterprise Stankoimport v. NV Reibel, Ad Hoc Arbitration Case, Final Award dated 5 December 2021, paras. 179-193.
[11] İbrahim Doğan Takavut, Milletlerarası Ticari Tahkimde Doğrudan Uygulanan Kurallar, 1st ed., On İki Levha Publications, 2018. According to author: “The vast majority of these regulations pertain to courts and contain provisions on how directly applicable rules are to be applied in disputes. The procedures and principles contained in these regulations are also used in arbitration proceedings by analogy. The reason why regulations concerning overriding mandatory rules are not included in arbitration regulations is that the regulations currently in use were mostly established before the discussion of overriding mandatory rules in the field of arbitration proceedings began.” (Authors’ translation).
[12] Id.
[13] Hatice Özdemir Kocasakal, “Doğrudan Uygulanan Kuralların Milletlerarası Tahkimde Esasa Uygulanacak Hukuk Üzerindeki Etkileri”, Tahkim ve Uygulanacak Hukuk, Istanbul Arbitration Centre (ISTAC) Publications, 2021 (“Kocasakal”), p. 45.
[14] Guido Carducci, “The Impact of the EU ‘Rome I’ Regulation on International Litigation and Arbitration: A-National Law, Mandatory and Overriding Rules”, ICC International Court of Arbitration Bulletin, 2011, p. 41. (referring to ICC Cases No. 2977, 2978, 3033 (1978), (1981)).
[15] Kocasakal, p. 237.
[16] Of course, if the application of overriding mandatory rules of a third state contradicts with Turkish public policy, the arbitral tribunal would not consider giving effect to these mandatory rules due to the risk of award being set aside in Türkiye.
[17] Maxime Chevalier, “International sanctions enacted against Russia as overriding mandatory rules—on which foot should international arbitrators stand?”, Journal of International Dispute Settlement, 2024, Oxford University Press (“Chevalier”), p. 166.
[18] ICC Case No. 21390, Final Award dated 22 November 2017.
[19] Eric De Brabandere, David Holloway, “Overriding Mandatory Provisions and Arbitrability in International Arbitration: The Case of Multilateral and Unilateral Sanctions”, Overriding Mandatory Rules and Compliance in International Arbitration, Chapter V, ICC Institute of World Business Law – Dossiers, 2018, p. 159. According to authors, the Paris Court of Appeal accepted that the UN sanctions can be assimilated to the loi de police internationale.
[20] Id.
[21] Chevalier, p.169. Author refers to ICC Case No. 15972 published in the ICC Bulletion of Dispute Resolution Issue 2016/1. According to the arbitral tribunal, it did “not need to apply foreign mandatory rules which merely serve to enforce national economic or political interests, however close the connection of the case to that country may be”.
[22] Chevalier, p. 169; Andres Mazuera, “Should Arbitral Tribunals Apply Sanctions Against Russia as Overriding Mandatory Rules?”, Kluwer Arbitration Blog, 9 April 2022, https://legalblogs.wolterskluwer.com/arbitration-blog/should-arbitral-tribunals-apply-sanctions-against-russia-as-overriding-mandatory-rules, accessed 27 August 2025 (“Mazuera”).
[23] United Nations Human Rights Council, “Secondary sanctions, civil and criminal penalties for circumvention of sanctions regimes”, Office of the United Nations High Commissioner for Human Rights, March 2023, https://www.ohchr.org/en/documents/thematic-reports/ahrc5133-secondary-sanctions-civil-and-criminal-penalties-circumvention, accessed 27 August 2025.
[24] Id.
[25] TCM v. Natural Gas Storage Company, Paris Court of Appeal, Case No. 19/07261, dated 03.06.2020.
[26] Chevalier, p. 169; Mazuera.
