Stepwise Risk Outlook highlights and contextualizes over-the-horizon news developments in key regions of the world and industries of the global market, and offers a longer-form analysis piece diving deep on one emerging risk or global flashpoint impacting decisionmakers today and tomorrow. Stepwise seeks to identify and contextualize emerging risks for business leaders and decision makers in every sector, providing insightful guidance and an international perspective on today's ever-changing business landscape.
The Lede: US Pentagon adds top Chinese companies to military companies list
Last Tuesday, the Department of Defense (DOD) updated the list of Chinese Military Companies (CMC List) in accordance with Section 1260H of the National Defense Authorization Act for 2021. The 50-plus newly listed companies were identified as allegedly being part of the People's Republic of China's Military-Civil Fusion (MCF) strategy, i.e., the Chinese military-industrial complex that support the modernization of the Chinese military.
The DOD's action has garnered broad attention because several leading Chinese technology companies were included in the list, raising questions on the trajectory and scope of trade restrictions. The CMC list is updated annually and the additions this year substantially increase the number of companies to 134. This intensification reflects the evolving US strategy to target the MCF ecosystem, rather than limiting focus to entities directly linked to the PLA. Expansion of focus to ecosystems can also been seen in recent export controls on companies producing high end manufacturing equipment and software tools used to produce advanced node semiconductors.
The Defense Department is prohibited from dealing with designated companies, with the bans beginning in June 2026. The impact, however, risks expanding beyond DOD restrictions. Congress has been working on new draft legislation, The Comprehensive Outbound Investment National Security (COINS) Act, which seeks to restrict US investment in entities supporting the Chinese military, among other activities. Efforts to have the bill attached to must-pass legislation (National Defense Authorization Act for Fiscal Year 2025) failed, but the bill is likely to be reintroduced in the next Congress. Unlike the newly-in-force Outbound Investment Security Program, which does not explicitly include transactions with entities on the CMC List as prohibited transaction, COINS draft language includes a section on non-SDN Chinese Military-Industrial Complex companies (and the CMC list), which mandates a report on whether any of these entities qualify for investment bans, among other prohibitions.
Some of the newly listed companies have extensive investments in the US and have shareholders who are US persons. Should US policy trend towards expanded investment bans, listed Chinese companies could seek to reduce their risk profiles by exiting investments. Companies can also challenge the CMC list designations, through administrative and legal challenges. While an uphill battle, companies have prevailed and been delisted.
The incoming Trump administration has already signaled intentions to "level the playing field" on trade with China. Trump, during his first term, banned Americans from investing in a number of Chinese firms alleged to have ties to the Chinese military. It is likely that the incoming administration will press forward on imposing new trade barriers, adding to technology decoupling and an increasingly tense relationship with China.
US Developments
US Intensifies Pressure on Russian Oil Production and Exports
OFAC designated more than 150 entities and individuals and identified as blocked property an unprecedented 183 vessels – many which it claims operate as part of Russia's "shadow fleet." The designations were made pursuant to a new determination under EO 14024, Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation, that authorizes sanctions against persons determined to operate or have operated in the Russian energy sector.
OFAC concurrently issued several new and amended GLs and FAQs.
The OFAC designations were aimed at reducing Russian energy revenues, including via two of Russia's most significant oil producers, Public Join Stock Company Gazprom Neft (Gazprom Neft) and Surgutneftegas, and their subsidiaries.
The State Department also made its own announcement, designating nearly 80 entities and individuals associated with liquified natural gas (LNG) and oil projects, third-country entities supporting Russia's energy exports, and Russia-based oilfield service providers and senior officials of State Atomic Energy Corporation Rosatom (Rosatom).
A White House statement indicated that the timing of the sanctions was driving in part by the realities of global energy markets, which have recovered from previous supply constraints, enabling the imposition of tighter energy sanctions with a less significant impact on consumers. These actions are among the most aggressive taken by the Biden administration since the Russian invasion of Ukraine in early 2022 and reflect a desire by the administration to increase sanctions on Russia before President-elect Trump takes office.
The incoming Trump administration is likely to take a less adversarial approach to Russia than the Biden administration, but may be reticent to make wholesale changes to the sanctions program early on. Among other reasons, President-elect Trump may wish to offer sanctions relief as part of a negotiated end to the war in Ukraine.
US Declares Genocide in Sudan
Secretary of State Anthony Blinken announced a determination that the Rapid Support Forces (RSF) and RSF-allied militias have committed genocide in Sudan. Alongside this determination, Blinken stated that US would be sanctioning RSF leader Mohammad Hamdan Daglo Mousa for his role in systemic atrocities committed against the Sudanese people, as well as sanctioning seven RSF-owned companies and one individual based in the United Arab Emirates (UAE) for their roles in procuring weapons for the RSF.
The genocide determination will not, in itself, automatically trigger additional sanctions against Sudan or actors within the country. However, genocide determinations can foreshadow additional sanctions and can result in greater pressure from Congress and the public on the Executive Branch to take a more significant role in addressing the underlying conflict. The 119thCongress has already begun its campaign for greater and more substantial action, with the ranking member of the Senate Foreign Relations Committee, Sen. Jeanne Shaheen (D-NH) calling for US allies to join in the sanctions and for the incoming Trump administration to make supporting an end to the conflict in Sudan a top priority. In addition, the ranking member of the House Foreign Affairs Committee, Rep. Gregory Meeks (D-NY) noted that he will reintroduce legislation, the U.S. Engagement in Sudanese Peace Act, which requires the president to, among other measures, impose sanctions against those who perpetrate or enable genocide, war crimes, or crimes against humanity, block humanitarian aid, or violate the United Nations arms embargo in Sudan.
It is unclear to what degree the incoming Trump administration will prioritize Sudan policy or will look to use sanctions as a tool to address the conflict there. The administration's policy could be driven by a range of geopolitical considerations, including the flow of oil from Sudan and South Sudan, which has been significantly hampered by the conflict, and the interests of regional players such as the UAE, which is reportedly funding the RSF, and Egypt and other neighboring countries who have become increasingly concerned about spillover effects in their countries.
Treasury Provides Sanctions Relief for Syria
The Office of Foreign Assets Control (OFAC) issued Syria General License (GL) 24, "Authorizing Transactions with Governing Institutions in Syria and Certain Transactions Related to Energy and Personal Remittances." The GL expands the authorizations for certain activities and transactions in Syria following the fall of the al-Assad regime on December 8, 2024 at the hands of Hay'at Tahrir al-Sam (HTS) and other rebel groups. The GL authorizes certain transactions in support of the sale, supply, storage, or donation of energy (e.g., petroleum, natural gas) to or within Syria. The GL also authorizes certain transactions with governing institutions in Syria and certain transactions related to personal remittances.
Concurrently, OFAC issued eight new FAQs (FAQs 1205 – 1212) and one amended FAQ (FAQ 227), which provide further clarification and guidance on the scope of the GL.
While the issuance of the GL is significant, Syria remains subject to comprehensive US sanctions meaning most dealings involving Syria remain prohibited. In addition, HTS itself is subject to blocking sanctions as a Specially Designated National (SDN).
President-elect Trump has stated that the ongoing situation in Syria is "not our [the US's] fight," indicating he is unlikely to contribute significant US resources to stabilizing or rebuilding the country. However, President-elect Trump could take action, if needed, to protect Israel or prevent Iran from regaining a foothold in Syria.
OFAC Designates Prominent Hungarian Official
OFAC sanctioned Antal Rogán, a senior Hungarian government official who serves as the Minister in Charge of Prime Minister Viktor Orbán's Cabinet Office, for his involvement in corruption. Specifically, OFAC alleges that Mr. Rogán has orchestrated a system for distributing public contracts and resources to cronies, and has orchestrated schemes to divert proceeds from strategic sectors of Hungary's economy to himself and party loyalists.
The designation is symbolic of the US's strained relationship with Hungary generally, and Prime Minister Orbán in particular, after the Russian invasion of Ukraine in 2022. During his term as the rotating President of the European Union (EU), Prime Minister Orbán flew to Moscow and Beijing on "peace missions" without approval or mandate from the other EU Member States. He has also criticized EU sanctions on Russia, noting that they do more damage to European economies than to Russia.
The incoming Trump administration may take a less adversarial approach toward Russia and, therefore, toward Hungary. President-elect Trump has promised to end the conflict in Ukraine shortly after taking office. President-elect Trump also has a warm personal relationship with Prime Minister Orbán and the two met in person at President-elect Trump's Mar-a-Lago resort last year.
White House Strengthens Balkans Sanctions Program
President Biden issued an Executive Order (EO) amending and expanding the criteria for designations under previously issued EO 14033, Blocking Property and Suspending Entry Into the United States of Certain Persons Contributing to the Destabilizing Situation in the Western Balkans. In a letter to Congress notifying it of the change, President Biden explained that the amendments were intended to "provide additional prongs for targeting persons for designation" and "deter individuals from attempting to evade United States sanctions." Among other measures, the amendments authorize the SDN designation of persons involved in the leadership of a sanctioned entity, persons that own or control a sanctioned entity, and persons that are a spouse or adult child of a sanctioned individual. The amendments also clarify that "attempting" to engage in any of the sanctionable conducted enumerated in EO 14033 is a basis for designation.
OFAC has recently designated senior officials and network affiliates of Republika Srpska (RS), which occupies territory in the north of Bosnia and Herzegovina and is led by Milorad Dodik, a pro-Russia Serbian nationalist, under EO 14033. The Biden administration has also expressed concerns over Russian influence in the Balkans, including alleged Russian efforts to exacerbate ethnic conflicts and spread disinformation. President Trump, on the other hand, has historically had a closer relationship with Balkans leaders and, similarly to the Hungarian case, is expected to take a less adversarial approach to Russia and, by extension, Republika Sprska. While the incoming Trump administration is unlikely to lift sanctions, it may be more selective about enforcement and eventually employ sanctions as leverage in regional deal-making efforts.
Lawmaker Introduces ICC Sanctions Bill
House Foreign Affairs Committee Chairman Rep. Brian Mast (R-FL), along with Rep. Chip Roy (R-TX), introduced legislation to sanction the International Criminal Court (ICC) for its "unwarranted targeting of Israel." The Illegitimate Court Counteraction Act (H.R. 23) imposes sanctions against foreign persons who the President determines have directly engaged in or otherwise aided (including financially) any effort by the ICC to investigate, arrest, detain, or prosecute any US person or citizen of a US ally whose home country has not consented to ICC jurisdiction, with certain exceptions. The House passed H.R. 23 by a vote of 243-140 and now goes to the Senate for consideration.
Congressional concerns over the ICC have increased since the ICC announced it was investigating Israeli Prime Minister Benjamin Netanyahu and former Israeli Defense Minister Yoav Gallant for crimes against humanity and war crimes associated with the ongoing conflict in Gaza. During President-elect Trump's first term he imposed sanctions on ICC staff following ICC investigations into activities in Afghanistan and the Palestinian territories.
VALOR and REVOCAR Acts Reintroduced in Congress as OFAC Continues to Sanction Maduro Regime
Senate Foreign Relations Committee Chairman Sen. Jim Risch (R-ID), along with Sen. Michael Bennet (D-CO) and five Republican colleagues, reintroduced the Venezuela Advancing Liberty, Opportunity, and Rights Act (S. 37), also referred to as the VALOR Act, to the Senate. In addition, Reps. Debbie Wasserman Schulz (D-FL) and María Elvira Salazar (R-FL) reintroduced the Revoke Exemptions for Venezuelan Oil to Curb Autocratic Repression Act (H.R. 328), or the REVOCAR Act, in the House, with Sen. Dick Durbin (D-IL) expected to introduce companion legislation in the Senate shortly. The VALOR Act and REVOCAR Act were both introduced in the 118thCongress as a response to the Venezuelan presidential election on July 28, 2024, which the US has claimed was rife with fraud.
The VALOR Act establishes democratic benchmarks for the removal of sanctions on the Maduro regime and any non-democratic successor and codifies existing financial sanctions on the Venezuelan Central Bank, Petróleos de Venezuela, S.A. (PdVSA), and Venezuelan cryptocurrency. Codification of sanctions means an act of Congress is necessary for their removal, as opposed to a unilateral decision by the president.
The REVOCAR Act strengthens sanctions against the Venezuelan energy sector by prohibiting any transaction by a United States person, or an entity owned or controlled by a United States person "to invest, trade, or operate within the energy sector of Venezuela," including dealings with PdVSA and the Maduro regime. According to Rep. Wasserman Schultz, the primary effect of the bill would be to eliminate existing general licenses that allow certain dealings with PdVSA and the Maduro regime.
The reintroduction of both the VALOR Act and the REVOCAR Act came just days before President Maduro was sworn in for his third six-year term, and at the same time as reports indicating the leader of the opposition, María Corina Machado, was detained. (Ms. Machado was later released, and the Venezuelan government denies having ever detained her.)
In connection with those Venezuelan political developments, OFAC announced that it was sanctioning eight more Venezuelan officials for enabling President Maduro to repress and subvert democracy, including the president of PdVSA, the Minister of Transportation, and the president of the Venezuelan Consortium of Aeronautical Industries and Air Services (CONVIASA).
President-elect Trump recently posted on Truth Social warning President Maduro not to harm Ms. Machado or any of the Venezuelan democracy activists. President-elect Trump significantly increased sanctions on Venezuela during his first term. With that said, President-elect Trump is also allegedly being urged by American oil executives and bond investors to avoid a repeat of his first-term "maximum pressure" campaign against Venezuela, and encouraged to pursue an oil-for-migrants deal whereby the US would ease oil restrictions in exchange for Venezuela accepting more deportation flights of Venezuelan migrants.
UK Developments
UK Targets Russian Oil Sector with New Designations Coordinated with US
The UK has designated the Russian oil giants, Gazprom Neft and PJSC Surgutneftegas, as part of a coordinated effort with the US to further cut down Russian oil revenues. The sanctions follow a raft of designations of vessels in the Russian "shadow fleet" by the UK and are designed to further curb Russia's war economy. The action is expected to significantly curtail Russia's ability to generate revenues from energy sales, as both entities produce over one million of barrels per oil per day.
The designations will also impact business dealings with companies more than 50% owned or controlled by either entity. To facilitate the orderly wind-down of existing business with the affected companies, HM Treasury's Office of Financial Sanctions Implementation (OFSI) has implemented General Licence INT/2025/5635701, which authorizes wind-down or divestment from transactions involving Gazprom Neft, PJSC Surgutneftegas and their subsidiaries until 05.01am GMT on February 27, 2025. OFSI also has issued General Licence INT/2025/6535700 to authorize the continuation of business operations with Gazpromneft-Sakhalin LLC and its subsidiaries in relation to the Sakhalin-2 project until June 28, 2025.
EU Developments
Germany and France Advocate for EU Sanctions Easing on Syria, Aligning with US Measures
Leaders in France and Germany are making an argument for the European Union to roll back its years-long sanctions against Syria, while coordinating closely with the United States. Berlin is advocating for the EU to relax Assad-era sanctions on Syria to aid political transition and reconstruction after 13 years of civil war. German officials have proposed lifting restrictions on banking, energy, air transport, and private asset movements in exchange for reforms from Syria's new leadership, led by Ahmed al-Sharaa. These proposals aim to gain support from the EU's 27 Member States at an upcoming Brussels meeting. France's Foreign Minister Jean-Noel Barrot has echoed Berlin's sentiments, advocating for the lifting of certain EU sanctions that impede humanitarian aid and recovery efforts, similar to recent US measures. Barrot stressed that further political sanctions would depend on the new Syrian leadership's ability to ensure an inclusive transition. The coordinated European effort seeks to support Syria's reconstruction and political evolution while maintaining a critical stance towards the new leadership's past actions.
EU Faces Potential Turmoil as Slovakia Threatens Sanctions Against Ukraine Over Gas Transit Dispute
Slovak Prime Minister Robert Fico has urged the EU to intervene in a dispute with Ukraine over Russian gas transit, warning of significant risks. Since Russian gas flows through Ukraine to the EU ceased on January 1, 2025, Slovakia faces a €500 million loss in transit fees that subsidized low gas prices. Despite lobbying by Slovakia and Hungary, Ukraine refused to renew the transit agreement. Fico has pressured Ukraine to resume gas flows, threatening reciprocal measures such as cutting electricity exports, withdrawing humanitarian aid, and reducing support for Ukrainian refugees. He and Hungarian Prime Minister Viktor Orbán have also threatened to oppose Ukraine's EU accession. Ukrainian President Volodymyr Zelenskyy opposes enabling Russia to profit from gas exports due to geopolitical risks. Following a high-level meeting with the European Commission, Fico announced the creation of a High-Level Working Group to seek solutions and assess EU assistance. Fico hinted Slovakia might use its veto power on critical EU decisions if necessary, raising concerns about escalating tensions, potential energy shortages, and implications for EU-Ukraine relations and regional stability.
Record Russian LNG Imports Highlight EU's Struggle with Sanctions and Climate Goals
Despite efforts to reduce reliance on Russian fossil fuels, Europe imported a record 17.8 million tonnes of liquefied natural gas (LNG) from Russia in 2024, a significant increase from the previous year. This surge occurred even as Europe drastically cut imports of piped Russian gas and aimed to support Ukraine amidst the ongoing war. Analysts highlighted that Russian LNG is often cheaper than alternatives, incentivizing purchases in the absence of specific sanctions. Ukrainian activists and climate campaigners have criticized the EU for undermining its own sanctions regime and climate goals by continuing these imports. They call for a complete ban on Russian LNG and tighter controls to close existing loopholes, arguing that such measures are essential to stop funding Russia's war efforts and reduce greenhouse gas emissions. The European Commission is set to ban the transshipment of Russian LNG to non-EU countries from March 2025, but further decisive action is urged to ensure a clean and secure energy future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
