This article examines how sanctions affect commercial contracts and arbitration, and explains sanctions clauses and the enforcement of arbitral awards in Türkiye.
Sanctions are no longer an exceptional risk in international trade; they have become an ordinary feature of commercial contracts. Apart from measures imposed by the United Nations Security Council, Türkiye does not implement the unilateral sanctions of the United States, the European Union or the United Kingdom. Turkish companies nevertheless feel their effects every day: correspondent banks stop payments, European suppliers demand no re-export clauses, carriers and insurers decline to provide services, and arbitral institutions and arbitrators seek licences before accepting fees. This article examines Türkiye's legal position on sanctions, the effect of sanctions on the performance of contracts governed by Turkish law, the drafting of sanctions and force majeure clauses, the EU "no-claims" rule and the 21st sanctions package adopted in 2026, the issues that arise in the arbitral process, and the enforcement of arbitral awards in Türkiye.
1. Türkiye's Position on Sanctions
Türkiye implements asset-freezing measures imposed by UN Security Council resolutions under Law No. 6415 on the Prevention of the Financing of Terrorism and Law No. 7262 on the Prevention of the Financing of the Proliferation of Weapons of Mass Destruction. The unilateral sanctions of the US, the EU and the UK are not directly binding under Turkish law. This does not mean that Turkish companies are unaffected:
- US nexus: payments in US dollars, or the involvement of US persons, banks or US-origin goods, can bring a transaction within the reach of US sanctions. US secondary sanctions can also target foreign companies and financial institutions with no US connection at all.
- EU nexus: EU sanctions bind EU nationals, companies incorporated in the EU and business carried out wholly or partly within the EU. EU parent companies are also expected to use their best efforts to ensure that their non-EU subsidiaries do not take part in activities that undermine the sanctions.
- Bank compliance policies: to protect their correspondent banking relationships, Turkish banks build sanctions lists and ownership tests, such as OFAC's 50 percent rule, into their own compliance policies. A sanction that is not legally binding in Türkiye can therefore, in practice, make a payment impossible.
2. Impossibility and Hardship Under Turkish Law
Where a contract is governed by Turkish law, the effect of a foreign sanction on performance is assessed first under the general provisions of the Turkish Code of Obligations (TCO). Under Article 136 TCO, an obligation is extinguished where performance becomes impossible for reasons for which the obligor is not responsible. Because a foreign sanction is not a prohibition under Turkish law, it does not in itself create legal impossibility. Its practical consequences, however, such as no bank being willing to process a payment or the goods being impossible to ship or insure, may amount to factual impossibility depending on the circumstances.
Where performance has not become impossible but has become excessively onerous, adaptation of the contract, or as a last resort withdrawal from it, may be available on grounds of hardship under Article 138 TCO. This requires that the extraordinary event was unforeseeable when the contract was concluded, which makes the remedy harder to invoke for contracts concluded at a time when the sanctions risk was already known.
Turkish courts apply the overriding mandatory rules of Turkish law even where the contract is governed by foreign law. Under Article 31 of the Turkish Code on Private International and Procedural Law No. 5718, they may also give effect to the overriding mandatory rules of a third state closely connected with the contract, having regard to their purpose, nature and content and to the consequences of their application or non-application. This provision is the legal basis on which foreign sanctions may be taken into account before a Turkish court, but it is a discretionary power, not an obligation.
Under English law, which is frequently chosen in international trade, two decisions offer guidance. In Lamesa Investments v Cynergy Bank (2020), the English Court of Appeal held that the words "in order to comply with any mandatory provision of law" in a facility agreement covered the need to comply with US secondary sanctions. In MUR Shipping v RTI (2024), the UK Supreme Court held that an obligation to use "reasonable endeavours" under a force majeure clause did not require a party to accept non-contractual performance, in that case payment in euros instead of US dollars. Both decisions show that the outcome depends heavily on the wording of the contract.
3. Drafting Sanctions and Force Majeure Clauses
General force majeure provisions often do not deal adequately with sanctions risk, so a separate and detailed sanctions clause should be included. A well-drafted clause covers the following:
- Regimes covered: the UN, the EU, the US, the UK and, where relevant, other states. The clause should state expressly whether "sanctions" include designations, sectoral prohibitions, export controls and secondary sanctions.
- Triggers: designation of a party, its shareholders or directors, ownership and control tests, and the refusal of a payment by banks on sanctions grounds.
- Consequences: suspension of performance, a right to terminate after a set period, limitation of liability, and the conditions on which alternative payment channels may be used.
- Representations and undertakings: that the party is not designated, is not owned or controlled by designated persons, and will not send the goods to a sanctioned destination.
- Information and cooperation: providing documents and information in response to requests from banks and regulators.
Turkish companies buying goods from the EU will also encounter the "no re-export to Russia" clause. Under Article 12g of EU Regulation 833/2014, since 20 March 2024 EU exporters of common high priority items and certain other goods must include this clause in their contracts, together with adequate remedies for breach. As Türkiye is not one of the partner countries exempted from this requirement, such clauses have become standard for Turkish buyers. A breach exposes the buyer to termination and damages, and the buyer may need to pass the same obligation on to its own customers.
Broad clauses giving the counterparty a unilateral right to terminate whenever it considers, in its sole discretion, that there is a sanctions risk are also common. Such provisions should be tied to objective triggers wherever possible, with rules on what happens to goods already delivered and payments already made if the contract is terminated.
4. The EU No-Claims Rule and the 21st Sanctions Package
Article 11 of EU Regulation 833/2014 prohibits satisfying, within the EU, claims made in connection with contracts affected by the sanctions by designated persons, Russian persons and persons acting on their behalf. This "no-claims" rule is broad and covers claims for compensation, contractual penalties and guarantees.
Recent sanctions packages have added more forceful tools to this protection. The 15th package introduced a rule requiring EU Member States to refuse recognition of Russian court decisions based on Articles 248.1 and 248.2 of the Russian Arbitrazh Procedure Code. The 20th package made anti-suit injunctions available against Russian proceedings. The 21st package, adopted on 23 July 2026, significantly expanded these tools:
- The non-recognition rule now covers not only decisions based on Article 248 but any Russian court or administrative decision holding an EU person liable in connection with a sanctions-affected contract.
- In addition to anti-suit injunctions, EU courts may now issue anti-enforcement injunctions ordering that a decision obtained in Russia not be enforced in any country.
- The right of EU persons to claim damages in EU courts for proceedings brought against them in third countries has been extended. It now also covers counterparties with no Russian or Belarusian connection that are involved in prohibited trade.
The last change is of particular importance for Turkish companies. A Turkish company that sues an EU supplier in Türkiye after the supplier has refused to perform on sanctions grounds, and that is found to be involved in prohibited trade, may face a counterclaim for damages in EU courts. How these tools will apply to arbitral awards and arbitral proceedings is not yet clear, but enforcement strategies targeting assets in the EU should already take this risk into account.
5. Sanctions Issues in the Arbitral Process
- Arbitrability: disputes arising from sanctions are, as a rule, commercial in nature and arbitrable. Arbitrators may take into account, alongside the law governing the contract, the overriding mandatory rules of the seat and of states closely connected with the dispute.
- Payments and licences: arbitral institutions, arbitrators and counsel may need licences for payments connected with a designated party, a process that can take months. If one party cannot pay its share of the advance on costs, the other may have to pay the full advance to keep the arbitration going.
- Choice of arbitrators: arbitrators who are EU, US or UK nationals are bound by the sanctions of their own states, which may affect their ability to accept an appointment or carry out certain steps.
- Parallel proceedings by a Russian party: under Articles 248.1 and 248.2 of the Russian Arbitrazh Procedure Code, a sanctioned Russian party may sue in Russia despite an arbitration clause and obtain an anti-arbitration injunction. In its 2021 Uraltransmash decision, the Russian Supreme Court did not require the party to show that its access to foreign arbitration had actually been obstructed.
- Seat and institution: a seat outside the EU and the US, such as Istanbul, and an institution such as the Istanbul Arbitration Centre (ISTAC), may reduce some sanctions-related procedural obstacles. A choice made without regard to the nationality of the arbitrators, the currency of payments and the country where the award will be enforced will not, on its own, provide protection.
6. Enforcement of Arbitral Awards in Türkiye and Public Policy
Türkiye is a party to the 1958 New York Convention. The recognition and enforcement of foreign arbitral awards is governed by the Convention and the relevant provisions of the Turkish PIL Code. Public policy is one of the grounds for refusal, but Turkish courts interpret it narrowly and confine it to the fundamental principles of Turkish law. Unilateral foreign sanctions that are not binding in Türkiye are not expected to form part of Turkish public policy on their own. It therefore seems unlikely that enforcement in Türkiye of an award ordering payment despite sanctions would be refused on that ground alone. By contrast, asset-freezing measures based on UN Security Council resolutions and implemented in Türkiye may present a direct obstacle at the enforcement and execution stage.
Where enforcement in Türkiye is sought of a Russian court decision issued in disregard of an arbitration clause, objections based on jurisdiction and public policy become important. We have discussed the conditions for the enforcement of foreign court judgments in this article. Even after an enforcement order is obtained, collecting the proceeds through the banking system may face a separate practical obstacle because of banks' own compliance policies.
7. Practical Recommendations
- Screen the counterparty, its shareholders and its ultimate beneficial owners for sanctions before contracting and at regular intervals throughout the relationship.
- Tie the sanctions clause to objective triggers, and negotiate provisions that give the counterparty broad unilateral discretion.
- Assess the payment currency and banking chain at the contracting stage in light of the sanctions regimes the transaction will touch.
- For goods bought from the EU, review the content of the Article 12g clause and determine whether you need to pass the same obligation on to your own buyers.
- In the arbitration clause, choose the seat, institution, nationality of arbitrators and language with sanctions risk in mind.
- Even where there is no legally binding prohibition, document practical obstacles to performance such as bank and carrier refusals. Any impossibility or hardship defence will rest on that evidence.
- When a dispute with an EU counterparty begins, build the litigation or arbitration strategy around the EU no-claims rule and the compensation and non-recognition tools expanded by the 21st package.
8. Conclusion
Although sanctions are not directly binding in Türkiye, they directly affect the contracts, payments and dispute resolution processes of Turkish companies. The key points can be summarised as follows:
- Türkiye implements only UN Security Council sanctions; US, EU and UK sanctions take effect in practice through banking and commercial relationships.
- A foreign sanction does not in itself create impossibility under Turkish law, but its practical consequences may amount to impossibility or hardship, and Article 31 of the Turkish PIL Code allows effect to be given to third-state rules.
- A detailed sanctions clause with objective triggers provides far more effective protection than a general force majeure provision.
- The EU no-claims rule and the tools expanded by the 21st package may restrict claims against EU counterparties and enforcement against assets in the EU.
- The seat, institution and arbitrators should be chosen with sanctions risk in mind; at the enforcement stage in Türkiye, foreign sanctions are not expected to constitute a public policy bar on their own.
For advice on drafting sanctions clauses, performance and termination strategy for sanctions-affected contracts, arbitrations involving sanctions and the enforcement of arbitral awards, please contact us at info@guzeloglu.legal.