SWIFT sanctions, intended to punish Russian banks selected for invading Ukraine, have been announced but not yet implemented and there is already turmoil in European energy markets.
The price of Ural oil, the benchmark for oil produced in Russia, fell off the table on Wednesday. It was selling at a discount of $20 a barrel from the price of $114.25 a barrel for Brent, the European benchmark.
President Joe Biden is concerned that a disruption to Russian oil production could spill over into the US and give an unwanted boost to already soaring gasoline prices. The biggest The issue when it comes to sanctions, however, is not oil, it is Russia’s natural gas, which accounts for 40% of the European Union’s supply. Although it hurt Russia’s economy, a disruption in natural gas supplies shipments would also leave many Europeans shivering with cold.
When the Biden administration and colleagues crafted Russia’s ban on SWIFT, an international messaging service for banks that keeps payments flowing, they were careful to ensure that energy transactions were left out. Seven Russian banks were barred from using SWIFT, but Sberbank and Gazprombank, the financial institutions that handle Russia’s gas export payments, remained untouched.
Biden and his allies in Western Europe and Canada are walking the fine line between berating Russian President Vladimir Putin for invading Ukraine and getting hurt by restricting Russian energy. They said they are still discussing an all-out economic war against the Kremlin, adding sanctions on oil and gas, and in his public comments Biden appears to be preparing voters for the possibility that new penalties against Russia will also hurt them. . Whether the allies go that far may depend on how far Putin goes with his war.
“The president, working with our allies, is trying to impose economic sanctions on Russia that harm the Russian economy and minimize impacts on the US economy,” Cecilia Rouse, chair of the Council of Economic Advisers, told NPR Wednesday. “As the president said, we really cannot expect to get through this, Russia having invaded Ukraine, which is such a serious threat to democracy all over the world, without there being some costs here at home.”
In the geopolitical game of wills, Western countries hope to preserve an exit route for Putin if he decides to slow the military escalation, said Henning Gloystein, director of energy, climate and resources at political risk consultancy Eurasia Group. So the world’s financial authorities don’t have to play all their cards in the week after the invasion, leaving for later the expansion of sanctions to more banks, then coal and steel. Its trump card, the oil embargo, would come last if necessary, Gloystein said.
“They’re very serious,” Gloystein said. Oil “is not on the table or imminent, but it is being discussed much more openly today than it was two days ago. But gas is last.”
If sanctions target oil, it could be harmful to the West. Russia exports 2.5 million barrels of crude oil daily to the EU and half a million to the US. Already high prices would rise, but if the gap is filled by other options, such as OPEC members pumping more, a supply shortage, at least theoretically, could be remedied in a few months.
The situation is much more urgent with natural gas. If Russian supplies were cut off, it could mean energy rationing in Europe, something most Europeans have never experienced. Finland, a potential NATO member, and Latvia, a current NATO member, get more than 90% of their energy from Russia, meaning contingency plans would have to be drawn up and logistical hurdles overcome before countries could enact sanctions. for natural gas, said Daniel Tannebaum, a NATO partner. consultant Oliver Wyman, who heads the anti-financial crime department for the Americas.
“This is not a point about not being tough enough,” Tannebaum said. “There is a pragmatic element to how you warm up these countries.”
Meanwhile, the oil industry has begun to “self-sanction” Russia. In the last two days, BP, Shell, Equinor and even ExxonMobil
To prevent energy prices from soaring, Russia will need to be contained without enacting a total embargo. Deutsche Bank analyst Michael Hsueh said oil could reach as much as $170 a barrel if sanctions completely halt Russian exports.
The Society for Worldwide Interbank Financial Telecommunications, the full name of the global cooperative overseen by the National Bank of Belgium, was created in 1973 and connects over 11,000 financial institutions worldwide. The messaging service said it recorded a daily average of 42 million messages last year, with Russia accounting for 1.5% of them. The Russian banks that will be withdrawn from SWIFT are VTB, Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank and VEB.
The sanctions follow a carefully crafted plan to keep the pressure on Russia while ensuring public support doesn’t wane, said James Angel, a professor at Georgetown University’s McDonough School of Business.
“We see the vise tightening slowly,” Angel said. “This is a high-risk level of international activity and you don’t necessarily want to fire all your ammunition at once because a lower level can be effective. If you blow up the pipelines now, Europe will freeze over this winter and you could lose a lot of public support for anti-Russian actions.”
With additional reporting by Chris Helman