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German officials reevaluate SWIFT ban for Russia; energy impact uncertain

Highlights

Germany had been a holdout

No details about oil, gas trade flows

Now looking for ways to limit collateral damage

German officials said Feb. 26 they were looking for a "targeted and functional" way to ban Russia from the international financial payment system SWIFT, but it remains unclear what impact such a move could have on oil and gas flows.

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Any actions by the US or EU to cut Russia off from SWIFT would raise questions for oil and gas markets regarding the ability of top Russian energy producers Gazprom, Gazprom Neft and RusHydro to send and receive payments. Russia's removal from SWIFT was left out of major sanction packages approved thus far by the US and EU in response to Russia's military invasion of Ukraine. Also left out were specific moves to block energy flows.

UPDATE: Risks to energy trades grow as West commits to Russia SWIFT ban, Central Bank sanctions

Further sanctions to ban Russia from SWIFT would effectively cripple Russia's banking network and access to funds, but it would also likely have global economic blowback. The US has been adamant that it does not intend to disrupt energy flows from Russia and is working to minimize impacts to global oil markets, in the face of soaring inflation, high fuel prices and a tenuous economic recovery from an ongoing global pandemic.

The US provided carve-outs for energy payments in its latest sanctions, with a Treasury Department waiver allowing "energy-related" transactions to continue with five of the sanctioned Russian banks until June 24.

EU countries including France, Italy and Greece have said they would support ejecting Russia from SWIFT, and Belgian Prime Minister Alexander De Croo said Feb. 24 that he was open to discussions regarding SWIFT as he advocated for stricter sanctions that "bite."

Germany, however, had been a holdout, with its Foreign Minister, Annalena Baerbock, expressing reservations as recently as Feb. 25, telling a German TV station that excluding Russia from SWIFT could harm Germany's energy supplies.

However, Germany's Foreign Office tweeted Feb. 26 that Ukraine "has an inalienable right to self-defense" and that Germany would provide "urgently needed material."

"At the same time, we are working flat out on how to limit the collateral damage of a SWIFT decoupling so that it hits the intended target," Baerbock and German Vice Chancellor Robert Habeck said on Twitter. "What we need is a targeted and functional retrenchment of SWIFT vis-à-vis Russia." A change in Germany's policy position could signal action from Europe to take this aggressive step and could also prompt similar action by the US.

US President Joe Biden Feb. 24 contended that removing Russia from SWIFT remained an option but was not currently a move European allies wished to take.

Deputy National Security Advisor and Deputy National Economic Council Director Daleep Singh told reporters Feb. 25 that "when we say all options are on the table, and that we're prepared to continue to ratchet costs higher, it would be a mistake to doubt that resolve." Singh stressed the US' coordination and efforts to be in lockstep with allies and partners as it imposes sanctions on Russia, and said that the US would escalate or de-escalate those measures depending on facts on the ground.