Ukraine-Russia, sanctions: Moscow outside Swift is an ‘atomic weapon’, it will hardly be used

In the “massive” package of sanctions that the US and the EU have been threatening to unleash against Moscow for weeks, it is very likely that the real “nuclear weapon”, the exclusion of Russia from the SWIFT financial system, will not be included, also because it could result in billion-dollar losses for European banks. In Europe, attention has been concentrated on the stop of the Nord Stream 2 gas pipeline that connects Russia to Germany. The announcement by Olaf Scholz of the suspension of the permits for the infrastructure fulfills a request from US President Joe Biden, who had explicitly talked about it with the German Chancellor. And yet, it is currently considered impossible that Germany, after having yielded on Nord Stream 2, can also accept the ‘sacrifice’ of SWIFT and with it, Washington’s other European allies. If Scholz’s SPD had remained almost isolated within the German government coalition in defending the pipeline from sanctions, on SWIFT it has a powerful ally, Friedrich Merz’s CDU, which in recent weeks, in an intervention on Die Welt, had spoke of a “big mistake” and of a damage that Europe would have inflicted on itself if Western sanctions had also included the exclusion of Russia from SWIFT. “There is a great risk that the system will collapse”, Merz said, voicing the fears of many. Friday, when the thermometer of the crisis between Russia and Ukraine had already been on solid red for days, the White House itself dispelled all doubt: SWIFT will be left out of sanctions. “All options remain on the table, but we will likely not see SWIFT in the starter package,” Daleep Singh, President Biden’s Deputy National Security Advisor, told reporters. Officially, the Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a Belgian messaging system that connects over 11,000 financial institutions for their money transfers around the world. It does not actually hold or transfer funds, but it does allow banks and other financial institutions to alert each other when a transfer is about to take place. For this reason, excluding a country from the system is equivalent to excluding it from the international financial system. Removing Russia from SWIFT would make it virtually impossible for financial institutions to send money into or out of the country, with a severe backlash for Russian companies and their foreign customers, especially oil and gas buyers. An estimate made in 2014, at the time of the annexation of Crimea, by former Russian finance minister Alexei Kudrin, estimated that an exclusion from SWIFT would have resulted in an immediate loss of 5% of its value for the Russian economy. There were two main reasons to hold back Washington’s initial intentions: the size of the Russian economy (much larger than that of Iran, already sanctioned with exclusion from SWIFT); and the opposition of the European allies. In the first case, Adam Smith, a former Obama administration treasury official, explained to the New York Times, “the Russian economy is a different beast. It is twice the size of any economy previously sanctioned by the US.” The exclusion of Russia from SWIFT would indeed be a “nuclear weapon”, as a Western banker recently commented, but the consequences for Western financial institutions involved with the Russian economy would not be quantifiable and governments would have to somehow make up for the losses. suffered. Costs too high for economies just recovering from the recession induced by the Covid pandemic. In particular, it is mainly European banks that oppose this measure. The fear, as has emerged from multiple sources over the past few weeks, is that an exclusion of Russia from the Swift would result in billions of dollars in losses on credit granted that would not be repaid. An already visible consequence of the ‘winds of war’ that have shaken the last few weeks are, for example, the step backwards by UniCredit with respect to possible acquisitions in Russia and the setting aside of funds by the Austrian Raiffeisen Bank International in the event of sanctions against Moscow. . Yet, according to several international observers, the very exclusion of Russia from SWIFT, combined with targeted sanctions against Putin’s ‘inner circle’ oligarchs, could deal a fatal blow to the Kremlin leader. The super rich who are backed by Putin and who in turn support Putin’s system of power, in a not always decipherable game of alliances and betrayals, keep their fortunes safe – and spend their fortunes – in the West. As Alexei Sobchenko, a former US State Department official, cited in an article by the Center for European Policy in Washington noted, “for these people, nothing is worse than being cut off from the West and its benefits” and it is probable. who would do anything to avoid being listed on a sanction list. Freezing the fortunes held by Russian oligarchs in Western banks and at the same time blocking any financial transactions with the motherland and their companies in Russia would likely be a decisive blow. In an article published in 2019 in Novye Izvestiya, it was read that the power structure in Russia and the entire political culture are saturated with the “cyanide of betrayal” and that betrayal is “the fastest social elevator for the Russian elite. “. Putin himself is aware of the risks and probably knows that many members of his entourage would hardly remain loyal to him, if there were real risks to their gold wealth. (by Marco Liconti)