On Thursday, President Joe Biden announced new sanctions against Russia in response to President Vladimir Putin's decision to invade Ukraine. The announcement came after weeks of escalating tensions between Russia and Ukraine, as well as mounting pressure from European leaders for the US to take action.
The new sanctions are designed to target key sectors of the Russian economy, including its oil and gas industry, as well as its financial and defense sectors. The move is aimed at increasing the economic pressure on Russia in an effort to deter further aggression towards Ukraine.
While Biden did not announce a harsh financial penalty against Russia or the expulsion of Russia from the SWIFT banking system, he did emphasize that such actions may still be on the table as the crisis continues to unfold. However, he noted that the rest of Europe is not currently in favor of such extreme measures.
Financial analysts have likened the possibility of such actions to a "nuclear option," as it would represent an unprecedented move against one of the world's largest economies. The implications of such measures would likely be felt not only in Russia, but also in other countries with close economic ties to the country.
What is Swift?
SWIFT is a Belgian-based cooperative society of financial institutions that provides secure global financial transactions. Founded in 1973 with the support of 239 banks across 15 countries, it connects over 11,000 financial institutions in more than 200 countries and regions. SWIFT's network sends payment orders that must be settled with correspondent accounts belonging to each other. The organization recorded an average of 42 million messages per day in 2021, an 11% increase from the previous year, with Russia accounting for 1.5% of transactions.
What Effect Will it Have on Russia?
The topic of imposing SWIFT sanctions against Russia has been widely discussed in recent years. The SWIFT network is the primary channel used by banks worldwide to process cross-border transactions, and removing Russia from this system would have a severe impact on the country's economy.
While some world leaders have urged Russia's expulsion from SWIFT, others have expressed concerns about the potential consequences. It has been noted that kicking Russia out of SWIFT would damage the Russian economy immediately and in the long run. Such sanctions could deprive Russia of most international financial transactions, including profits from oil and gas production, which accounts for over 40% of the country's income.
The US and its European allies have been considering imposing SWIFT sanctions against Russia since the annexation of Crimea in 2014. However, no decision has been made yet, as this move could hurt other economies, including the US and key ally Germany. Furthermore, Russia is an essential energy supplier for Europe, which makes it challenging for European colleagues to support such a drastic measure.
President Joe Biden has announced new sanctions against Russia in response to the Russian invasion of Ukraine. While he has not yet announced any SWIFT sanctions, he noted that removing Russia from SWIFT is an "option" and that the US has not taken that step so far because "that's not the case for the rest of Europe."
House Intelligence Committee Chairman Adam Schiff has expressed his support for imposing harsher financial penalties against Russia, including removing it from SWIFT. He has argued that the administration could go further and force European countries to accept harsher financial penalties. He added that if they did not, the United States could act unilaterally.
However, many analysts argue that such actions would require the support of European allies, and it is unlikely that they would take such a drastic step at this stage, given the potential consequences. As of now, there are no SWIFT sanctions against Russia, but new sanctions against Russia are increasing day by day.
It remains to be seen how this situation will develop in the coming days, weeks, and months. As the world watches the ongoing conflict between Russia and Ukraine unfold, the question of SWIFT sanctions against Russia is likely to remain a topic of discussion among policymakers and analysts alike.
EU Commission's Response
Ursula von der Leyen, President of the EU Commission, announced in a statement that the assets of the Central Bank of Russia would be paralyzed, and its transactions would be frozen, making it impossible for the bank to liquidate its assets. She also noted that Russian oligarchs would be banned from using their financial assets in EU markets.
The designated Russian banks that will be removed from the SWIFT system include Bank Otkritie Financial Corporation, NovikomBank, Promsvyazbank, BANK ROSSIYA, Sovcombank, Vnesheconombank (VEB), and VTB BANK. This ban will also apply to any legal person, institution, or organization residing in Russia and whose property rights are directly or indirectly more than 50% owned by the aforementioned banks.
These new sanctions come on top of previous measures, such as the ban on EU banks accepting deposits of more than 100 thousand euros from Russian citizens and the prevention of the sending of necessary goods, services, and technology to oil refineries. The EU is hoping that these sanctions will put significant pressure on Russia to de-escalate the situation in Ukraine and respect international law.
It is worth noting that the decision to ban Russian banks from the SWIFT system is a significant one, as it will severely limit Russia's ability to conduct international financial transactions. SWIFT is the backbone of the global financial system, and being excluded from it could have severe consequences for the Russian economy. This move is seen by many as a "nuclear option" and demonstrates the EU's willingness to take strong action to defend its values and interests.