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February 28, 2022updated 01 Mar 2022 10:11am

Risks to energy markets as SWIFT ban against Russia goes ahead

All eyes are on Russia’s oil and gas flows as the nation is barred from the international payment system SWIFT.

By Scarlett Evans

The US, Canada, and a number of EU states announced a new series of sanctions against Russia over the weekend in light of its ongoing attack on Ukraine. The new restrictions include Russia’s ban from international payment system SWIFT (the Society for Worldwide Interbank Financial Telecommunication), a move that has raised concerns over its potential impacts on global energy markets that are still reeling from the pandemic. 

In addition to the ban, assets from Russia’s central bank are to be frozen. European Commission President Ursula von der Leyen said during a press conference that this will “make it impossible for the Central Bank to liquidate assets”, and ensures that Russia feels the full effect of the sanctions.  

In a statement published by the White House, the nations wrote that the measures are in opposition to “Putin’s war of choice and attacks on the sovereign nation and people of Ukraine”, with the penalties intended to restrict Russia’s access to its overseas reserves and “harm their [banks’] ability to operate globally”. 

SWIFT is a secure messaging system used by financial institutions around the world to make international payments, and is a keystone for international trade. Removal from the system is considered the harshest sanction levelled against Russia so far, as it significantly impedes Russia’s ability to engage in foreign trade.  

“SWIFT is the global messaging system banks use in order to communicate with each other to manage and settle transactions across borders – it is vital to any bank transfer made between two different countries,” says Daniel Webber, CEO of FXC Intelligence, a leading provider of cross-border payments data and intelligence. “While there are some alternative options for sending small amounts, such as cash remittances or via debit cards, cutting a bank off from SWIFT makes it virtually impossible for it to make large cross-border payments.” 

Russia is heavily reliant on SWIFT for its oil and gas exports, and the decision to bar Russia from the platform means that top Russian energy producers Gazprom, Gazprom Neft, and RusHydro will be severely limited in their capacity to send and receive payments.  

“For these types of payments, without SWIFT, your next most viable option is likely to be to pay in gold or similar, which obviously comes with its own very serious challenges,” Webber says. “A full blocking of SWIFT in Russia could therefore see some countries unable to pay for their energy supplies and so lose access.” 

Given the volatile state of current energy markets, sanctions that could weaken Russia’s energy flows have until now been avoided, with nations such as Germany initially opposing the measure given its reliance on Russia for coal imports.  

Minimising impacts on oil and gas markets also remains a priority as the latest sanctions are brought into effect. However, as details of exactly how the new measures will be rolled out remain unclear, industry members can only speculate as to how energy payments may be spared. 

These sanctions remain a hit to Russia’s economic jugular, and over the weekend Germany’s Foreign Minister Annalena Baerbock tweeted that a “targeted and functional” approach would be taken to ban Russia from SWIFT. 

“While there has been some discussion of potentially restricting SWIFT for all Russian banks except for certain payments, this has never been tried before, and it is not clear if it would be even remotely possible to enact,” says Webber. 

Oil and gas prices have been rising since Russia’s invasion on Thursday, amidst concerns over supply security, with Brent crude prices at just under $100 per barrel.  

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