The United States and its NATO allies have implemented an unprecedented number of sanctions against Russia as punishment for its invasion of Ukraine last week, including a ban on exporting advanced technologies to Russia.
One move Ukraine and some of its allies have advocated is to isolate Russia from SWIFT, the world's largest financial transaction network. It is an option that would isolate Russia from most international banking transactions and could cripple its economy for some time.
On Saturday, the United States and its allies moved forward with plans to do just that. “We are committed to ensuring that certain Russian banks are removed from the SWIFT messaging system,” the leaders of the European Commission, France, Germany, Italy, the United Kingdom, Canada and the United States said in a joint press release. release. "This will ensure that these banks are disconnected from the international financial system and will damage their ability to operate globally."
SWIFT (Society for Worldwide Interbank Financial Telecommunications) is a financial messaging network used by more than 11.000 financial institutions in 209 countries. Overseen by the G10 central banks, the SWIFT payment network uses standardized and secure codes that allow financial institutions to send and receive information, such as instructions to transfer money across borders.
The SWIFT network is essential for cross-border trade, as it allows companies in one country to secure payment in another country. For example, an EU company buying Russian products must use SWIFT to transfer funds from a local bank to the Russian supplier's bank account using SWIFT bank codes.
Once Russia goes offline, its government and businesses will no longer be able to receive payments for goods and services unless Russia institutes secondary measures. Forty percent of Russia's revenue from oil and gas sales passes through the SWIFT network, according to Aseem Prakash, co-founder and global futurist at the Center for Innovating the Future, a Toronto-based consultancy.
"The more the United States weapons its currency... or excludes countries from SWIFT, the more countries will be forced to create or find alternatives. It is already happening. And, most likely, Russia would have considered those options," he said. Prakash ahead of the move's announcement on Saturday.
The ramifications could be felt quickly. On Saturday night, an MSNBC reporter tweeted that she had been asked to pay his hotel bill in Moscow immediately. "My hotel in Moscow asked me to pay the bill early as they are not sure if credit cards will work once the SWIFT sanctions take effect."
Using the global financial network as a sanctions weapon could undermine confidence in the US dollar and in SWIFT as an apolitical network. This could speed up the creation of alternatives such as trading in local currencies, the use of cryptocurrencies and the conclusion of new bilateral free trade agreements, Prakash said. China, Iran and India, for example, already trade in local currencies.
In 2014, Russia created its own banking network, Financial Message Transfer (SPFS), in response to sanctions threats from SWIFT at the time. Russia could also choose the Chinese alternative to SWIFT called CiPS - Cross-Border Interbank Payment System. There are plans to integrate SPFS into China's cross-border interbank payment system.
Russian President Vladimir Putin may not care about the economic hardship caused by sanctions. But the Russian banks they target are largely controlled by Russian oligarchs, and Putin probably cares about them. This is one of the main reasons why the first round of multinational sanctions launched last week targeted the country's kleptocracy.
Announced on Tuesday by the United States and its main allies, the European Union, the United Kingdom, Canada, Japan and Australia, these sanctions included the "total blockade" of two of Russia's biggest financial hunches: the VEB and the Russian military bank. . , Promsvyazbank, which provides defense deals, US President Joe Biden said.
A Treasury Department statement said VEB is "crucial" to Russia's ability to raise funds, while Promsvyazbank is an essential part of Russia's defense sector. The two institutions and their 42 subsidiaries have combined assets worth $80.000 billion, according to the statement. The Biden administration said it also blocked the financial transactions of five key Russian oligarchs suspected of "participating in the Russian regime's kleptocracy."
Despite this, cries to isolate Russia from SWIFT grew as Russian troops and equipment poured into Ukraine and the capital Kiev. The Ukrainian government had called for Russia's expulsion from the banking system, but the move was seen as such a big step that several countries urged caution.
On Thursday, the European Central Bank, British Prime Minister Boris Johnson, Canadian Prime Minister Justin Trudeau and Czech President Milos Zeman called for Russia's expulsion from SWIFT. Germany, however, warned him and other EU countries had reservations. G7 officials said some members were reluctant because it would make it impossible to pay for Russian energy, which could indirectly drive up international energy prices, a concern also for Washington.
“If the West cripples the Russian economy, Russia could cut off power supplies in retaliation. This will create absolute chaos in Germany which 65% of its natural gas comes from Russia,” Prakash said. "If the German economy and society are affected, it will have a huge negative impact on the rest of Europe (as Germany is the largest economy in Europe)."
Furthermore, Western banks already have hundreds of billions of dollars at stake, especially in oil and gas futures. There are oil and gas tankers on the high seas whose cargo was bought weeks and months ago. Cutting Russia off from SWIFT could leave those purchases in the balance, and it is US and European banks that could be responsible for the money, Prakash said.
It is not yet clear how these purchases would be liquidated after the latest sanctions.
Asked at a press conference on Thursday about the possibility of cutting off Russia's access to SWIFT, Biden said Europe was not comfortable with that yet, so he was excluded from the sanctions announced that day. Instead, the sanctions extended financial sanctions to Russia's 10 largest banks, their oligarchs and high-tech sectors, Biden said.
Unprecedented export controls will eliminate more than half of Russia's high-tech imports, restricting Russia's access to vital technological inputs, stunting its industrial base and undermining Russia's strategic ambitions to exert influence on the world stage. Biden explained.
The President also acknowledged that Russia's withdrawal from SWIFT could affect the EU. "It's always an option, but right now it's not the position the rest of Europe wants to take," Biden said Thursday.
The president of the EU, Ursula von der Leyen, says she is blocking a plane from proposing a package of "massive and specific sanctions" to the leaders of the EU for her approval. "We will target strategic sectors of the Russian economy by blocking their access to technologies and markets that are essential for Russia," she said, adding that the EU will seek to limit Russia's "modernization capacity". Russia.
(The EU and US have also gone after Putin more directly with sanctions against him and his top advisers unveiled Friday night.)
Technological sanctions are specifically aimed at preventing exports of sensitive technology for Russia's defense, aviation and marine sectors.
In addition to broad restrictions on Russia's defense sector, Biden said the US government will impose restrictions throughout Russia on sensitive US technology produced in foreign countries using Russian-American software, technology or equipment. .
The restrictions affect semiconductors, telecommunications, encryption security, lasers, sensors, navigation, avionics and maritime technologies and are designed to cut off Russia's access to advanced technologies.
Prakash pointed out that US sanctions on high-tech items do not only include products made by US companies. The sanctions also ban any product made anywhere that uses any kind of US technology (software, sensors, etc.).
“Yes, China will be able to fill some gaps. But the sanctions will hurt Russian manufacturers who import all kinds of products from different parts of the world,” Prakash said. "They will have to rethink everything: the supply chain, the payments and the layout of the factory."
While semiconductors are relatively easier to control through supply chains because there are a relatively small number of companies that produce them, constraining sensors or software involves a different calculus.
"Sanctions compliance and enforcement, globally, will be difficult for high-tech general-purpose products," Prakash said.
Along with the financial sanctions, the EU announced that it would ban the export of certain technologies in an effort to weaken Russia's ability to modernize and hamper its long-term economic growth.
"The wild card in all of this is of course foresight," Prakash said. "To what extent and to what extent did Russia see all this and plan for it?"
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