Ukraine war: What is SWIFT and why is expelling Russia a 'last resort'?

Russia’s expulsion from SWIFT, the widely-used system of monetary transactions, is back on the table for a 3rd round of EU sanctions, despite previous attempts to exclude it.

As Moscow continues its invasion of Ukraine, Western countries are coming under increasing pressure to provide you with extreme measures that will force the Kremlin to comply with a ceasefire and stop the violence.

EU leaders have already approved two rounds of sanctions that focus on Russia’s financial, energy and transport sectors, tighten export control, including semiconductors, and restrict visa issuance. The penalties also include travel bans and the freezing of assets of a President Putin’s inner circle.

Together, the bloc goals to cripple at the least 70% of Russia’s banking system as a way to cut off the funds needed to bankroll the invasion.

“Second wave of sanctions with massive and severe consequences politically agreed last night,” said European Council President Charles Michel. “Further package under urgent preparation.”

However the Kremlin appears undeterred by threats of sanctions, which the EU is imposing in coordination with the USA, the UK, Norway, Canada, Japan and Australia.

All eyes turn now to SWIFT, which is seen as a last-resort, dramatic measure to vary Moscow’s mind.

EU foreign affairs ministers flew to Brussels on Friday to finalise the brand new raft of sanctions and discuss a 3rd sanctions package, through which the payment system is back on the table.

“Many countries need to transcend what’s being agreed today,” Simon Coveney, Ireland’s Foreign Affairs Minister, told Euronews before heading to the ministerial meeting.

“I understand that there may be already a 3rd package of sanctions that features the [SWIFT] system, which may be passed in the following few days,” he added.

From Paris, French Finance Minister Bruno Le Maire didn’t categorically rule it out.

“That is the very last resort, SWIFT, but that is considered one of the choices that is still on the table,” he told reporters.

The prime ministers of Ireland, Belgium and the Netherlands have previously called on the EU to be more ambitious in its response and seriously consider Russia’s expulsion from SWIFT.

Poland, Latvia, Lithuania and Estonia are also believed to support the move, but Germany, Italy, Hungary and Cyprus have expressed their concern, Euronews understands.

EU sanctions should be approved by unanimity and require the green-light from the 27 member states.

“It’s a possibility some member states didn’t think it will be smart to do it at this stage, however it’s still distinctly on the table,” Frans Timmermans, the European Commission’s Vice-President, told Euronews.

“We must always be very clear that we’ll not refrain from the harshest sanctions given what’s happened: there is a war on in Europe.”

“Over the previous couple of days, the sanctions have come to a level which is nearly ok to affect the calculus of Vladimir Putin.”

Meanwhile, Ukrainian officials proceed to push for the bloc to show words into motion.

“BAN RUSSIA FROM SWIFT and kick it out of all over the place,” Dmytro Kuleba, Ukraine’s foreign affairs minister, wrote on Twitter in an impassioned plea.

He later tweeted that Italy had “assured” him it’s going to support the SWIFT ban.

What’s SWIFT and why is it so necessary?

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a high-security intermediary system that permits banks and institutions around the globe to perform financial transactions – that’s, extraordinary payments – amongst one another.

The system was founded in 1973 and is headquartered in La Hupe, Belgium. Today, SWIFT links greater than 11,000 financial institutions in greater than 200 counties and territories, making it an important piece of our globalised, fast-paced economy.

Crucially, SWIFT is utilized by EU member states to pay for Russian gas and oil, two resources that represent the backbone of the Russian economy.

Because the EU is Russia’s primary energy client, many at the moment are calling for the country’s expulsion from SWIFT as a way to deprive Moscow of the much-needed funds to sustain the continuing invasion of Ukraine.

“If Russia is not any longer in a position to actively take part in the international economic system, that has a serious impact,” Fabian Zuleeg, Chief Executive at European Policy Centre (EPC), told Euronews.

“It makes it very difficult to run financial institutions inside Russia and it cuts off, very effectively, from outside finance. So, I believe it is a move that will have helped.”

Why is expelling Russia from SWIFT considered dangerous?

However the move is dangerous. A complete expulsion from SWIFT would mean that virtually all EU-Russia trade would come to a sudden halt, disrupting a big a part of the bloc’s economy.

Russia is the EU’s fifth-largest trade partner: in 2020, total trade in goods between the 2 amounted to €174.3 billion, of which €79 million were EU exports, in response to the European Commission.

If this enormous sum of money were to vanish overnight, member states would feel the pain in an instantaneous and painful way. Gas prices would skyrocket, sending consumer bills to unimaginable highs and forcing many factories to stop production altogether.

“[SWIFT] is all the time an option. But right away, that’s not the position that the remaining of Europe wishes to take,” said US President Joe Biden when asked concerning the possibility.

“If Russia is disconnected from SWIFT the economy will implode, it’s going to be a catastrophe for the Russian economy. And if the key oligarchs are sanctioned, then Putin’s own wealth could be worn out, and could be completely inaccessible. And people are two very material things to Vladimir Putin,” said financier Bill Browder, head of the Global Magnitsky Justice Campaign, named after his former lawyer who was murdered in a Russian jail.

“Does he [Putin] stop attacking Ukraine on the day that happens? Surely not. But does it put him able where every part that he’s worked for, for the last 20 years, has been sacrificed, surely yes. And at that time we’re then able where we’ve got some leverage,” Browder told Euronews.


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