Russian exports of crude, LNG and agricultural products face severe disruption after the US and its allies moved to block certain Russian banks’ access to the SWIFT international payment system.
SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a secure messaging system that facilitates rapid cross-border payments, transferring trillions of dollars a year.
Created in 1973 and based in Belgium, SWIFT links 11,000 banks and institutions in more than 200 countries and has become the principal mechanism for financing international trade.
European Union officials speaking on Sunday did not clarify exactly which Russian banks will be excluded from SWIFT.
EU foreign policy chief Josep Borrell said the measure would apply to “a certain number” of Russian banks, with a view to “effectively cripple” the country's financial market.
Ursula von der Leyen, the president of the EU executive commission, said the world should be in no doubt about the scope of the measure. “This will stop their exports of products from mineral fuels to tobacco, wood and timber, cement, iron and steel,” she said.
The EU also said that the West was taking measures to block about half of the Russian central bank’s foreign exchange reserves that are currently parked in G7 countries and the total amount of which is estimated at about $630bn.
Significant disruption
Analysts said the move would deal a blow to Russia’s economy, but also hurt the West with a spike in prices and inflation.
Russia is the third largest seaborne exporter of coal in the world, accounting for 15% of global supply, it is the second largest seaborne exporter of crude oil in the world, with a market share of 11%. It is also the fourth largest seaborne exporter of LNG in the world, accounting for 8% of global supply, according to Banchero Costa’s Singapore-based head of research, Ralph Leszczynski.
According to S&P Global Platts, about 48% of Russian crude and condensate exports are going to western European countries, primarily the Netherlands, Germany and Poland, and 42% to Asia, mostly to China.
European countries account for 72% of Russian natural gas exports.
“While trying to exempt energy transactions, SWIFT can still cause significant disruption to energy trade flows in the near term, at least until buyers switch to alternatives like Telex or other systems,” Amrita Sen, co-founder of the Energy Aspects think-tank told Reuters.
“On other commodities — I can’t see how trade continues without the exemptions,” she said.
Russian energy and commodity flows to Asia, especially to China, will likely continue, according to analysts.
Both China and Russia have been developing alternatives to SWIFT. Beijing has been encouraging the use of its homegrown alternative, known as the CIPS clearing and settlement services system, while Moscow has set up its own banking messaging system, known as SPFS, reported Reuters.
Iran was banned from SWIFT in 2012, as part of sanctions over its nuclear programme. It lost almost half of its oil export revenues and 30% of foreign trade.
On Sunday, oil majors BP and Norway’s Equinor both announced that they would be exiting investments in Russia.
The UK oil major said it will exit its shareholding in Rosneft. It has held a 19.75% shareholding in Rosneft since 2013.
Additionally, BP chief executive Bernard Looney is resigning from the board of Rosneft with immediate effect. The other Rosneft director nominated by BP, former bp group chief executive Bob Dudley, is similarly resigning from the board.
At the same time, Equinor said it has decided to stop new investments into Russia, and to start the process of exiting its Russian joint ventures.
“In the current situation, we regard our position as untenable,” Equinor chief executive Anders Opedal said in a statement.
“We will now stop new investments into our Russian business, and we will start the process of exiting our joint ventures in a manner that is consistent with our values.”
Equinor has been in Russia for more than 30 years and entered a cooperation agreement with Rosneft in 2012.
