Nuclear Option: UK Says Kick Russia Out of SWIFT

♠ Posted by Emmanuel in ,, at 2/26/2015 01:30:00 AM
To be cut off from SWIFT is to be cut off from international finance.
Here we go again: a few months ago I wrote about Western powers having designs on kicking Russia out of the Society for Worldwide Interbank Financial Telecommunication system or SWIFT. Since it handles most of the international transfers for trade, investment, and simply moving money around, SWIFT is a must-have for conducting commerce in the modern world. Yes, Russia has actually forecast a scenario wherein it would be kicked out of SWIFT due to its various shenanigans in Ukraine (see the link above). However, coming up with a financial transfer system of its own is not exactly viable at present since an interbank system of one nation doesn't quite cut it for obvious reasons.

Citing the perceived effectiveness of bringing Iran back in line after cutting it off from SWIFT, the British are now mulling the EU doing the same to recalcitrant Russia since SWIFT is based in Brussels, Belgium:
Excluding Russia from the SWIFT banking system should be an option in lieu of sanctions if a truce in Ukraine is not respected, British Prime Minister David Cameron said. Russia last month said it would retaliate strongly if it were to be cut off from SWIFT, the international financial industry's secure messaging system that facilitates transactions. 
Speaking to a parliament committee on Tuesday, Prime Minister David Cameron vowed that Britain would push for tougher sanctions against Moscow if a tattered truce between pro-Russian rebels and Ukrainian forces falls apart. "I would hope that the European Union collectively would respond very robustly with new sanctions, including so-called 'tier three' sanctions, really hitting the economy of Russia," Cameron said.
British PM Cameron's argument is that if Russia wants to behave like a rogue state, then it might as well not participate in the global financial system (an estimated 90% or more of Russian banks' international transactions are coursed through SWIFT):
"But were that not possible then, of course, we should look at other avenues as well -- obviously looking at the SWIFT banking issues is a big decision but there is a logic for it."

"If Russia is going to leave the rules-based system of the 21st century, then they have to start thinking about whether it's going to be in the 21st century system when it comes to investment, when it comes to banking, when it comes to clearinghouses."
It is, of course, easy for the UK's leader to suggest this course of action since it does not rely much on Russia for natural gas supplies. Unfortunately for him, the real Europeans--those on the mainland using the euro currency--are quite reliant on Russia for gas supplies. The UK relies on Russia for less than ten percent of its gas needs; Belgium, for instance, relies on Russia for over 40%. With 30% or so of total EU gas consumption met by Gazprom alone, Russia has a fairly big gun whose trigger it can pull on the EU if push comes to shove. You don't have to be a genius to figure out that Russia will wield the gas weapon for leverage over this matter.

Bottom line? I would be surprised if the EU even considers cutting Russia out of the Belgium-based SWIFT since it would probably mean being cut off from Russian gas supplies in turn. Unless relations deteriorate to such an extreme extent, that is.