SWIFT ban looks to ignite the fire in Russian markets

“Glory to Ukraine”.

Global leaders are banding together — hitting the Russian economy with sanctions — but will they really stop a Russian invasion?

Fighting fire with money

Sanctions aim to block off Russia’s financing — but their effects won’t be immediate. Since the invasion:

• Countries have imposed long lists of sanctions on Russia including freezing the assets of sanctioned Russian companies and oligarchs.
• Organizations are canceling events, removing Russian sponsors and distancing themselves from Russian organizations.

Intel, AMD and other major chipmakers are stopping chip deliveries to Russia. Delta stopped selling tickets operated by Aeroflot, a Russian national airline. The list of sanctions and company actions taken against Russia are growing — but few think they’ll stop Russia’s attack — taking months or years to impact Russia’s economy.

“The financial nuclear weapon”

SWIFT is the “Gmail of banking” — letting over 11,000 banks and companies send messages to deliver and confirm trades — while handling trillions in transactions.

According to Noah Smith, an economics writer, banning Russia on SWIFT would make Russian banks less desirable — leading to bank withdrawals and potential bank runs.

• If Russia manages to withdraw its ~$300B kept overseas, a SWIFT ban would have less impact.
• So far, only five Russian banks are cut off from SWIFT — a complete ban not yet off the table.

In 2012, Iran’s economy was significantly hit by a SWIFT ban and completely cutting Russia off from SWIFT could reduce its GDP by 5%. Meanwhile, the EU — which relies on Russia for natural gas — may face the biggest impact from collateral damage.

Investors: Russian markets on fire…

… And it’s not lit. Yesterday, Russia raised its interest rates from 9.5% to 20% — in efforts to keep money in Russian banks — banning its citizens from transferring money outside Russia.

• While the Russian markets have been closed for days, the VanEck Russia ETF (BATS:RSX) — which trades on US exchanges — has fallen 60% in 2022.
• But before you buy the Russian ETF thinking their economy is on sale — Russian markets could fall even further on more sanctions or from being completely cut off from SWIFT

The Russian Ruble has fallen 30% against the USD — leaving Russians rushing to withdraw USD. With international banks reluctant to do business with Russian banks, if this continues, Russia could face a deep recession.