The US and Europe are turning to economic sanctions in an effort to punish Russia for its invasion of Ukraine without tempting nuclear war.
One sticking point has been SWIFT, the 48-year-old Belgian organization that acts as a hub for global money transfers between banks, more formally known as the Society for Worldwide Interbank Financial Telecommunication. Ukraine’s government and critics of the invasion around the world have called on Russia to be banned from the organization, where they are one of the largest participants.
This step would make it harder for Russia to both accept payments from around the world for its exports and to purchase goods abroad, isolating it from the world economy until workarounds are found. One widely cited estimate reports the move might cost its economy 5% of GDP, roughly equivalent to the country’s growth in 2021. Pushing Russia into a recession won’t stop the tanks from rolling into Kyiv, but it will exact a price on Vladimir Putin’s regime, if not the autocrat personally.
Iran was tossed out of SWIFT between 2012 and 2016, when it signed the nuclear deal known as the Joint Comprehensive Plan of Action (JCPOA).
US president Joe Biden may have said it best: “Right now, that’s not the position that the rest of Europe wishes to take.”
Europe gets a significant share of its oil and natural gas from Russia, and with global production of fossil fuels stretched, policymakers expect that cutting off the world’s third largest producer of oil and second largest producer of natural gas will send already rising prices of those commodities even higher. It would also hurt other markets, like that for wheat, with potentially dire consequences for countries like Lebanon. So far, the US and Europe have tried to target sanctions more narrowly and exempt fossil fuel transactions from their effects.
There’s another concern: Russia has already invested in creating an alternative to SWIFT called SPFS, and China a similar institution called CIFS. Sanctions are effective only because of interconnection; in the long run, a ban might accelerate the fracturing of the global economy that makes them a useful tool of statecraft.
SWIFT is just a formal communications service; it doesn’t handle the money. That’s done by correspondent banks, special financial institutions that work with central banks to settle global payments. Financial experts say Western countries have already taken steps to prevent that from happening, like this week’s sanctions on the country’s two largest banks, Sberbank and VTB, which go a long way toward cutting Russia off from the dollar economy.
There are more banks that are still unsanctioned, however, as well as the oil and gas sector. If the West is serious about cutting off Russian resources, it may have to prepare for a surge in fossil fuel energy prices and plan to invest in renewables. The ultimate move, sanctions expert Edward Fishman suggests, might be attempting to block the Central Bank of Russia from transacting in dollars, Euros, and other major currencies.