Everyone knows of the chaos currently unfolding in Eastern Europe. How Russia and its crony country Belarus invaded Ukraine under the pretenses of ‘denazification’ and how the West united in solidarity with the besieged Ukrainians to sanction their aggressors. What you might not know is how those sanctions will truly impact the future Russia and its geopolitical standing in the world for the foreseeable future. What we’ve seen in the past week has not only been a display of war in its classical, horrible armed sense, but also the emergence of a new kind of warfare, one who’s main targets are not people, but bank accounts. In this short article, I will try to explain how the West tried to financially cripple the Russian economy and how this new type of intervention against geopolitical enemies will impact the world and its future.
Since this war started, not many things have been going in Russia’s favour. Its army is sustaining significant losses, morale has plummeted, western countries have rallied against it with all their economic might and Russian citizens are revolting en-masse. Even if Russia manages to somehow conquer Ukraine, it will not be rid of some of these problems, as western democracies have found themselves a common enemy, one which they may have already defeated without firing a single bullet. To better understand the rationale behind these sanctions, it would be best to explain their underlying reasons and their impact.
When a big company such as Disney or Apple boycotts Russian markets, it’s easy to understand how such an action might turn out. Russian citizens will simply be deprived of buying or enjoying the goods and services provided by that specific company. But when other countries band together and decide to kick a country’s banks out of an international communication system or directly sanction a central bank, that’s when things get muddled.
To begin with, for anyone who may not understand what SWIFT is, here’s a quick rundown. SWIFT or the Society for Worldwide Interbank Financial Telecommunications is a Belgian cooperative communications system that allows banks across the globe to send quick and secure messages amongst themselves. Billions of transactions are processed through the system every year and it’s not just bankers paying themselves bonuses. Every online payment, every meal ordered on Uber Eats and all other small transactions we each make every day go through SWIFT. This means that when the EU signed off on the decision on Wednesday, banks such as VTB, VEB and other smaller financial institutions would find themselves unable to process payments. This is a harsh but ultimately lenient punishment for the Russian nation. While some people and companies might find themselves unable to pay their fees for a while, the Russian financial system will find a way to crack on. Whether it’s through its own rinky-dink messaging service or through a deal with the Chinese and their messaging system CIPS, Russian banks will not feel the supposed harsh sting of these measures.
It doesn’t help that Russia is still a big player in energy markets and European lawmakers were reticent to ban banks such as Sberbank (the largest bank in Russia) and Gazprombank (key financial institution for energy payments) out of fears that sanctions on these institutions would negatively impact the already inflation-battered European energy grids. It remains to be seen whether Russian financial markets and the Russian economy will weather this storm of sanctions either by leveraging their own systems or finding a replacement within potential allies such as China. In either case, the most impacted victim of these unprecedented economic actions will inevitably be the Russian citizen as they may find themselves living in a country whose connections to outside democracies have been severed.
While these sanctions may not ultimately have the intended impact on the Russian Economy, they are still rather unprecedented when it comes to recent history. The only example that comes to mind is March 2012 when Iran suffered a similar fate when the Belgian messaging system ejected the country due to its nuclear dealings. The country was readmitted only after signing the 2015 Iran Nuclear agreement. Nevertheless, this sort of financial warfare is a novel idea when it comes to our contemporary World Order, and it may be the case that future wars may be fought and ended by typing a few commands on a computer, and that organisations such as SWIFT, who claim neutrality, can always be influenced to act against other member countries.