Initial economic sanctions against Russia over its invasion of Ukraine did not include a move to sever the Kremlin’s access to the SWIFT international banking system – an omission that has sparked debate among world leaders.
When pressed to explain why the US hadn’t already called for Russia’s expulsion from SWIFT, President Biden argued the initial tranche of sanctions targeting Russian banks and exports were more severe – even as he hinted that some European allies oppose the measure that some experts view as the most significant penalty on the Russian economy.
“It is always an option,” Biden said at a press conference. “But right now, that’s not the position that the rest of Europe wishes to take.”
But as fighting intensifies in Ukraine and Russian President Vladimir Putin continues to defy the international community’s warnings, US and European leaders will face mounting pressure to expel Russia from SWIFT, some geopolitical watchers say.
What is SWIFT and how does it work?
Launched in 1973, SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a Belgium-based system that facilitates international transactions and money transfers for banks located around the world.
The communications network averaged 42 million daily messages in 2021 alone, connecting more than 11,000 financial institutions in more than 200 countries.
Why is a SWIFT ban the ‘nuclear option’ for sanctions?
Losing access to the SWIFT system would severely hamper the ability of Russia and its financial institutions to conduct international business and cause major damage to Russia’s economy. The Kremlin and its affiliated businesses would have to find alternative means to coordinate their deals – a slow, costly process.
For example, Russia would be unable to secure profits from international sales of its oil and gas production — compromising an industry that provides a significant bulk of the country’s annual revenue. Trading and currency exchanges would be far more complicated.
In 2019, Russian Prime Minister Dmitry Medvedev said a loss of access to the SWIFT system would be tantamount to a declaration of war.
Why a SWIFT ban makes sense
Those in favor of a SWIFT ban see the move as a logical step to apply maximum economic pressure on the Putin regime as it embarks on a costly, difficult military campaign.
Proponents argue ejecting Russia from SWIFT would further isolate the country’s economy in a way that exceeds the reach of previous sanctions targeting specific institutions or individuals. Russia has taken steps to prepare for a potential ejection from SWIFT, but its alternative system is said to be rudimentary.
“While Russia has attempted to reduce its dependence on the SWIFT system, it remains vulnerable. Combined with enhanced sanctions on technology that Russia cannot obtain from China, financial sanctions of this kind would have a serious long-term impact,” Atlantic Council analyst Harley Balzer, an expert on Russia, said in a recent blog post.
Ukrainian President Volodymyr Zelensky, top British officials and the foreign ministers of NATO nations Estonia, Latvia and Lithuania are among those in favor of a SWIFT cutoff.
Arguments against a SWIFT ban
Some experts argue that banning Russia from SWIFT will only incentivize the Kremlin to pursue closer ties with China – potentially leading to the development of a rival, global banking system to the European-led model.
“By politicizing SWIFT you give incentive for others to develop alternatives,” Brian O’Toole, a senior fellow at the Atlantic Council and former Treasury official, told the Associated Press.
A ban also risks interrupting exports of Russia’s oil and gas resources – placing further strain on the energy market when oil is already trading near $100 per barrel. Further impacts to international trade and imports could hurt the economies of other nations.
And some analysts warn Russia could try to use cryptocurrencies as an alternative to SWIFT, exacerbating regulatory concerns in the process.
German Foreign Minister Annalena Baerbock warned a SWIFT ban could be harmful to innocent individuals attempting to conduct overseas businesses. French Finance Minister Bruno Le Maire argued a SWIFT ban should be viewed as a “very last resort” for Russia.
“A number of countries are hesitant since it has serious consequences for themselves,” said Dutch Prime Minister Mark Rutte.
With Post wires