Following Russia’s invasion of Ukraine on Thursday, Lithuania and Moldova entered a state of emergency as Eastern Europe braced for an influx of refugees. The United States, the United Kingdom, and the European Union responded with sanctions claimed to be “the largest and most severe package of economic sanctions that Russia has ever seen”.
In the UK, Boris Johnson announced that Russian banks’ will have their assets frozen and be excluded from the UK financial system, and major Russian companies will be stopped from engaging in UK markets. The US imposed an export restriction against Russia and sanctioned five major Russian banks. The G7 group agreed to restrict Russia from using the US dollar, euro and sterling. The EU has promised “hard-hitting” sanctions that will target “Kremlin interests” but is yet to announce the details.
However, the international community has held back for now from imposing sanctions on Vladimir Putin himself and from disconnecting Russia from the Society for Worldwide Interbank Financial Telecommunication (Swift) international banking system – regarded by many analysts as the most severe punishment Russia could face short of a military intervention.
So, what is Swift and how would this sanction, if implemented, work?
Access to Swift is essential for international trading as it delivers messages among financial institutions. It is used by more than 11,000 banks and financial institutions worldwide and handles 42 million messages a day, facilitating trillions of dollars’ worth of transactions
The EU cut off Iran from the Belgium-based system in response to Tehran’s nuclear program and losing access to it may cost Russia five per cent in GDP a year.
However, there has been a reluctance among some western countries to impose this measure as it would make it impossible to pay for Russian energy, which would cause a spike in international energy prices.
In addition, the Bank of Russia has been running its own financial messaging system for Russian and foreign banks since 2014, and some suspected that banning Russia from Swift would simply encourage Moscow to replace Swift with its own alternative.
Whether or not ejecting Russia from Swift would be effective is unknown.
What is known is the diplomatic failure to deter Russia from invading in the first place.
In 1994, Ukraine signed the Budapest Memorandum and gave up its nuclear weapons in exchange for security guarantees from all parties, a promise that has not been fulfilled.
As a result, we are now watching something many of us never thought we’d see: Russian forces sweeping through a modern European country and attempting to seize its capital. A dark day.