EU, UK, Canada, US pledge to remove selected Russian banks from interbank messaging system SWIFT
The European Union (EU), the United Kingdom (UK) , Canada and the United States (US) have pledged to remove selected Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system. This move is a response to the continued aggression by the Russian Government in Ukraine, which has been in a state of conflict since early 2014.
This action is part of a wider international effort to contain the threat posed by Russia and limit its capacity to meddle in other nations’ affairs. In this article, we will explore the implications of the decision and analyse the effectiveness of this decision.
Background of the Situation
The current political and military crisis in Ukraine began in late 2013, when then-President Viktor Yanukovych suspended preparations for signing an association agreement with the European Union. This decision was met with mass protests, culminating in Yanukovych’s displacement from office and a shift to a more pro-Western government. The interference of Russian forces—initially covert, but increasingly overt—in Ukrainian affairs only escalated the conflict.
Russia has been increasingly encroaching upon Ukraine since 2013, illegally annexing Crimea in 2014 and later gradually escalating its presence in eastern regions of Ukraine following clashes between Ukrainian forces and pro-Russian separatists throughout 2014 and 2015. In 2016 alone, 373 violations of the ceasefire that was signed by both sides were registered; this conflict has been linked to at least 1866 casualties (as of March 21st 2017). The remaining separatist forces are estimated to number between 3500-8000 troops supported directly by Russia or other foreign countries. As such, it is clear that Russia’s aggression towards Ukraine is ongoing, despite attempts at de-escalating the conflict by various governments.
Overview of the Move by the EU, UK, Canada, and US
The move by the European Union, the United Kingdom, Canada and the United States to impose new sanctions on Russia has been described by leaders as a response to a Russian campaign of aggression in Ukraine since 2014. The measures taken target individuals and businesses that have allegedly enabled human-rights abuses, violated international law, or provided financial assistance contributing to Russia’s destabilisation of Ukraine.
The new sanctions prevent financial transactions with sanctioned entities, making it more difficult for them to do business internationally. Over 200 sanctioned individuals and 100 entities have been identified by the EU and other countries, many of whom are reportedly from close circles of those in Vladimir Putin’s regime. In addition, sanctioned individuals have been prohibited from travelling within certain countries, such as the EU.
All four countries involved have noted that their response is intended to pressure Russia to peacefully resolve disputes associated with the continued conflict in eastern Ukraine. However, they also indicated that further measures could be imposed if necessary conditions are unmet or Russia’s presence continues in eastern Ukraine.
Impact on Russia
The EU, UK, Canada, and US have decided to remove selected Russian banks from the interbank messaging system known as SWIFT. This is in response to the continued aggression that Russia has demonstrated in Ukraine.
This move can have a significant impact on the banking system in Russia. So let’s look closer at this move’s effects on the Russian economy.
Potential Economic Impact
Russia’s continued aggression in Ukraine, including the annexation of Crimea, trade sanctions levied against Russia by the United States, European Union, and other countries, and the decrease in global oil prices have all created a challenging environment for Russia’s economy.
The decreased demand for Russian oil and gas has notably impacted federal and regional budgets. In response to this pressure on its public finances, the Russian government has cut spending across various areas including pensions, education and health services.
At the same time, increased inflation due to reductions in imports and weakened purchasing power have further strained everyday citizens; food prices have risen significantly. Moreover, further economic problems may arise if Russia cannot secure other sources of income due to restrictions imposed by international sanctions; one of the key areas affected by these are military sales. Additionally, foreign investors are increasingly cautious when considering doing business in Russia due to concerns over instability caused by strained diplomatic relations with Ukraine and its allies.
In response to these economic conditions, the government has announced an emergency bailout package totaling 1 trillion Rubles (roughly 15 billion USD) with a focus on helping small-to-medium sized businesses access liquidity from banks at low interest rates. However, despite this federal assistance, regional governments remain largely dependent on hydrocarbon revenue streams amidst weakening global prices for Russian crude oil & gas exports.
Political Impact
When analysing the political impact of Russia’s aggression in Ukraine, it is important to consider how it has affected relationships between Russia and other countries. The European Union (EU), United States, and key allies have imposed sanctions on Russia in response to its destabilising activities in the region. These sanctions have had a damaging effect on Russia’s economy. Although President Vladimir Putin has expressed reluctance to comply with international demands, he has been forced to make concessions in some areas due to the financial pressure caused by these sanctions.
These tumultuous political conditions have also hindered international trade between Russia and many of its allies. In addition, recently imposed embargoes from countries including the U.S., EU, Ukraine, Japan and Canada have prevented Russian businesses from participating in global markets, leading to significant lost revenue for many industries across the country. All of these factors have severely hurt the Russian economy and its geopolitical standing amongst its allies who are opposed to their continued attempts at interference or control within Ukraine’s borders.
Impact on the Rest of the World
The US, UK, Canada, and the EU have made a joint statement pledging to disconnect some Russian banks from the global payments messaging system SWIFT to respond to Russia’s continued aggression in Ukraine.
This move will have an impact on the financial system not just in Russia, but around the world. The following will explore the implications of this move on the rest of the world.
Potential Benefits
The European Union and US move to impose additional sanctions on Russia has generated several potential benefits. These benefits are both economic and geopolitical.
From an economic standpoint, the sanctions have caused a significant fall in Russia’s ruble currency. This has made foreign investments into Russia more attractive for those looking for higher returns than elsewhere in Europe or the United States. Additionally, lower energy prices (as a result of the sanctions) have helped to spur activity in many other economies which depend upon Russian oil and gas exports as sources of revenue.
At the same time, these actions have sent a powerful message to Russia regarding its actions on Ukraine’s borders and can act as a deterrent against further aggression on that country or beyond. Moreover, they provide evidence that actions taken by smaller countries will not be taken lightly and can potentially serve to check any further attempts by larger nations to exert their influence over weaker nations through international politics. Finally, they demonstrate to other states with aggressive neighbours that there is available recourse if one is willing to take it. That larger states with greater political clout will step up when needed to maintain international peace and stability.
Potential Risks
Russia’s continued aggression in Ukraine has raised tension, exacerbated regional and even global tensions, and created risks in both economic and security terms. The ensuing conflict has put numerous countries, companies and individuals in dangerous situations. For Ukraine, the costs have included:
- Displacement of civilians due to violence.
- Major economic losses through disruption of industrial production.
- An uncertain political future.
- A weakening of its fragile democratic gains.
Furthermore, this move may affect other countries through:
- The effects on investors affected by currency movements, and the cost of any reduction or increase in supply or demand due to disruptions caused by the conflict.
- Political risk from further provocations from Russia due to existing issues such as sanctions imposed on it due to its aggression in Ukraine.
- The potential for security implications for countries with borders close to Ukraine or where people from those areas have migrated due to conflict. This includes potential recruitment into extremist organisations from people displaced by the fighting.
- Increased tension within NATO regarding how best to respond to Russian moves against Ukraine. In particular, how European members should increase their defence spending while some North American members argue for sufficient defence expenditure levels already being allocated within their nations’ budgets.
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