Although both the European Union and the United States pat themselves on the back that “sanctions”
are working, everyone knows that the fortuitous drop in oil prices is the major
reason why Russia is feeling some pain. So if Lavrov claims that sanctions are
having little effect on the Russian economy, maybe, for once, we should believe
him, and start imposing some real sanctions in light of the most recent
developments.
There may have been some rationale for progressively
ratcheting up sanctions in the past, but not anymore. When 9,000 troops from
Russia and hundreds of tanks, armored vehicles, and advanced armaments cross
the border into Ukraine, there is no hiding as to their intent and meaning – it is an act of
war.. When these forces
deliberately target civilian,
residential areas and buses, and
place explosives under bridges, there is no
hiding which country is a state supporter of terrorism. And when their most prominent local leader
insists that there will be no more peace talks, but only further escalation of
hostilities, perhaps we should not hide the obvious: there will be no
peace in Europe until Russia decides that it has had enough.
Within the last day or two, as European foreign ministers
gathered in response to the growing crisis, the possibility of cutting off
Russian banks’ access to SWIFT has once again surfaced. SWIFT is the electronic bloodstream of the
international bank transaction system.
The SWIFT platform transmits more than 2 billion bank-to-bank messages
each year; remits payment orders and facilitates the transfer of $6 trillion
per day; and is used by 10,500 financial institutions in 215 countries. In
August of last year, Britain and Poland
called on blocking Russian access to SWIFT, and in September the European
Parliament passed a resolution calling on the European Union to do so.
The only other country that had been sanctioned and blocked
from SWIFT was Iran in 2012. The ban was widely seen as having help
persuade Iran’s government to negotiate over its nuclear program. Russian banks
are more connected to international trade and capital markets than Iran’s were,
and, therefore, are heavy users of SWIFT and other SWIFT-connected payment
systems. It has been reported that more
than 90 percent of transactions involving Russian banks cross borders. According to
former Russian finance minister Alexei Kudrin, blocking Russian access to SWIFT
might cause Russia’s GDP to shrink by as much as 5 percent.
The impact this sanction would have on the U.S. or British
economy would be small, since both countries have an export trade with Russia
of about 1 percent. But countries such as
Germany, whose export trade with Russia is more than 3 percent may find it more
painful. As regards the cumulative
effect on Europe and North America, the effect would barely register. Russia’s economy is less than 6 percent that of the
free world (it is appropriate to again start using that term) and, despite all
of Putin’s and Foreign Minister Sergei Lavrov’s bluff and bluster, it is only Russia that will feel the
pain. Almost everything else has been tried – without success – to convince
Putin to stop the butchery and to rejoin the civilized world. Putin never hesitates showing his combative
prowess and challenging others to tests of strength and skill. He respects those who stand up to him and has
only contempt for those he defeats.
Perhaps the only remaining way to get his attention is to hit him with a
financial “two by four.”
Russia is busily developing an alternative to SWIFT which it hopes to introduce in May. Therefore, time is of the essence if Europe
and the U.S. are to be taken seriously in their condemnation of Putin’s breach
of international order and support for terrorism. They must make him understand that he may
have a bigger problem to deal with than his war against Ukraine and threat to
European stability and NATO members. It
must be made unmistakably clear that if he fails to begin implementation of the
Minsk Agreement within a set number of days, then the disruption to his economy
may cost him his throne.
