Page 6 - FSUOGM Week 03 2022

FSUOGM COMMENTARY FSUOGM

West rules out blocking Russia

from SWIFT

Blocking Russia from SWIFT would have had a significant impact on global oil

and gas trade, at least in the short term

RUSSIA THE US and its Western allies have reportedly alternative solution besides SWIFT. Indeed,
ruled out cutting Russian banks from the SWIFT there were calls to block Russia from SWIFT
global payment system, fearing the impact in 2014, in response to Moscow’s annexation of
WHAT: that such a move would have on global energy Ukraine’s Crimean peninsula. Since then, Russia
Western allies have markets. has been building its own financial communica-
reportedly ruled out Germany’s Handelsblatt newspaper reported tions platform known as the System for Transfer
blocking Russia from that Western governments were instead con- of Financial Messages (SPFS).
SWIFT. sidering economic sanctions targeting Russian Today, SPFS is used by more than 400
banks as an alternative response if Russia invades banks, including two dozen from other former
WHY: Ukraine. The Russian ruble gained ground after Soviet countries. It handles around a fifth of all
The step was proposed Handelsblatt’s report was released. domestic financial communications, and this
as a response if Russia The White House National Security Council could be extended to oil and gas customers in
invades Ukraine. denied that blocking Russia from SWIFT was no Europe.
longer being considered, however. Still, there are limitations that SPFS would
WHAT NEXT: “No option is off the table,” a spokesperson have to overcome. While SWIFT operates 24
Banning Russia from said “We continue consulting very closely with hours a day, SPFS can only dispatch messages
SWIFT would have a European counterparts on severe consequences during weekday working hours. There are also
dramatic short-term for Russia if it further invades Ukraine.” shorter limits on the length of the messages.
impact on oil and gas Western governments have accused Russia Russia could join forces with China, which
trade, but over time of preparing to invade Ukraine, after amassing is also developing an alternative to SWIFT, to
Russia and its customers a force of over 100,000 troops at the two coun- establish a global alternative to the system. Bei-
would find alternative tries’ shared border. Russia has made a series of jing launched its Cross-Border Interbank Pay-
solutions. demands including a commitment that Ukraine ment System in 2015, as a means of protecting
will never join Nato, but they have mostly been its banks from losing access to SWIFT.
rejected by the US. Talks between the two sides So far there are no signs of tensions between
broke down earlier this month without a resolve. Russia and Ukraine de-escalating. There are
SWIFT is a secure communications platform fears that Europe could be moving towards its
used by banks, brokerages and other financial worst security crisis in decades, after a series
institutions to send and receive information, of talks between Russian and Western officials
such as instructions for transferring money earlier this month failed to yield any progress in
overseas and settling securities trades. Critically, negotiations.
it is used by Russia to quickly process payments What the Kremlin plans to do next is unclear,
for the oil and gas it exports. although few analysts expect Russia actually to
Described as “the nuclear option,” cutting launch a conventional war in Ukraine. Such a
Russia off from SWIFT would likely be severely move would be too costly, both financially and
disruptive for global energy trade, at least in the in terms of Russian lives, while leading to a
short term, at a time when gas and power prices dramatic ratcheting up of sanctions against the
are already at record highs following a sharp Russian economy. An invasion would also find
rebound in demand this year. The effects would limited support at home.
be the most acute in Europe, the epicentre of the What seems more likely is that Mos-
global energy crisis. cow ramps up its unconventional war in east
This said, given that Russia’s oil and gas Ukraine, destabilising its southern neighbour
exports are critical for European energy secu- and providing it with leverage to ensure it never
rity, it is likely that both sides would find an joins Nato.™

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