As the threat of a Russian invasion of Ukraine continues to grow, US lawmakers have suggested that Russia could be removed from the Society for Worldwide Interbank Financial Telecommunication as part of the heavy sanctions being considered against the country.
SWIFT is a high-security network that connects thousands of financial institutions worldwide.
Russian lawmakers have reacted by saying that shipments of oil, gas, and metals to Europe would cease if the sanction occurs.
“If Russia is disconnected from SWIFT, then we will not receive [foreign] currency, but buyers, European countries in the first place, will not receive our goods — oil, gas, metals and other important components,” Nikolai Zhuravlev, vice speaker of Russia’s upper house of parliament, said Tuesday.
SWIFT was established in 1973 to replace the telex. The system is now used in over 11,000 financial institutions to handle international banking transactions. Currently, there is no globally accepted alternative to SWIFT.
If the sanction is imposed on Russia, it would be nearly impossible for financial institutions to send money in or out of the country. It would have an immediate and direct impact, especially on Russia’s oil and gas customers.
SWIFT unplugged Iranian banks in 2012 after the European Union sanctioned them over its nuclear program. After the disconnection, Iran lost almost half of its oil export revenue and 30% of foreign trade.
There has been no official statement of support among the NATO allies about supporting this measure against Russia. If Russia is disconnected, the United States and Germany will encounter the most significant impact. According to banking records, SWIFT transactions between both nations and Russia are the most frequent.
In recent years, Russia has taken steps to avoid severe consequences should it be removed from SWIFT.
Moscow established a proprietary payment system, called SPFS. The creation of the system came after experiencing Western sanctions in 2014 following its annexation of Crimea early that year.
SPFS currently has about 400 users, according to Russia’s central bank. About 20% of domestic transfers are presently handled through SPFS.
China’s Cross-Border Interbank Payment System, or CIPS, might also provide another alternative to SWIFT in the face of Russian sanctions. Moscow might also choose to start using cryptocurrencies.