The West Blocks Russia’s Access to SWIFT, Exports to Crumble

The Western powers have moved to block some Russian banks’ access to SWIFT international payment system, as further sanctions are imposed in the wake of continued Russian aggression towards Ukraine. Russia’s exports of all commodities from oil and metals to grains are expected to see severe disruptions, hurting both the Russian economy and the West. Supply issues will likely to cause a spike in prices and inflation.

Although some banks, like Gazprombank, which services large payments of oil and gas, are exempt from full blocking sanctions, the time it takes to switch to new systems will still severely disrupt flows.

The sanctions include restrictions on the Russian central bank’s international reserves and will be imposed in the coming days.

While sanctions try to exempt some energy transactions, SWIFT can still cause significant damage to energy trade in the short term until the traders switch to alternatives. Trade of other commodities will be even harder without exemptions.

SWIFT is used for fast international payments and the primary tool that is used to finance international trade. It is used to transfer trillions of dollars every year.

Russia produces 10% of global oil and supplies 40% of Europe’s gas. It is the top global exporter of grains and fertilisers, and top producer of palladium and nickel. It is also the third biggest coal and steel exporter and fifth biggest wood exporter.

The move to isolate big parts of the world’s 11th largest economy, and supplier of one sixth of world’s commodities, is unprecedented in the age of a globalized world.

Russia’s energy and commodities trade with Asia and especially with China is not expected to be affected much. Both China and Russia have been working to develop alternative systems to SWIFT.

Russia hopes it can direct its exports to China from the West in case of severe disruptions, but gas cannot be rerouted and China’s capacity to store more oil is limited.

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