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Potential ban on Russian use of SWIFT payments, dollar could impact energy exports


Russian de-dollarization plan introduced in 2014

Russian alternative to SWIFT not widely used abroad

Financial sanctions could increase Russian reliance on OPEC+ cohesion

  • Author
  • Rosemary Griffin
  • Editor
  • Manish Parashar
  • Commodity
  • Natural Gas Oil Metals
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  • United States
  • Topic
  • War in Ukraine

A potential ban on Russian use of the SWIFT payments system and the dollar could impact energy exports, if included in new financial sanctions in the event of a Russian invasion of Ukraine.

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In recent weeks, the US and UK officials have indicated that they may be willing to sanction Russia's access to both.

Russian media cited Russian senator Nikolai Zhuravlev Jan. 25 as saying that if the country is disconnected from SWIFT, then Russia may not receive foreign currency, but in turn European buyers will not receive Russian goods such as oil, gas and metals.

S&P Global Platts Analytics sees financial sanctions as "certain" in the case of an invasion, which they see as raising Russian reliance on OPEC+ cohesion, higher oil prices and potentially triggering tax hikes.

"However, we estimate Russia's 2022 fiscal breakeven price at $65/b Brent, down from $75/b in 2021, largely due to higher net oil exports. This indicates an ability to weather additional sanctions, and therefore negotiating leverage," Platts Analytics said in a political risk special report released Jan. 18.

Prices for Russia's key grade Urals have risen significantly over the last year. S&P Global Platts assessed Urals at $87.04/b Jan. 25, up 59% from $54.75/b on the same date in 2021.

SWIFT transactions

Headquartered in Belgium and founded in 1973, SWIFT is a global provider of secure financial messaging services, subject to Belgian and European law. Representatives of SWIFT did not immediately reply to a request for comment on a potential ban on Russia using the system.

In 2014, when a potential ban was first discussed as a response to Russia's role in the conflict in Ukraine, SWIFT issued a statement saying it is a neutral global cooperative company set up under Belgian law. At the time, it said SWIFT will not make unilateral decisions to disconnect institutions from its network as a result of political pressure, but will comply fully with all applicable European law. SWIFT previously introduced a ban on Iranian access to the system in response to sanctions.

Any ban on SWIFT could stimulate usage of Russia's alternative -- the System for Transfer of Financial Messages. Introduced in response to the first threat of a SWIFT ban for Russia, usage of the system has grown domestically but has not yet been widely adopted internationally.

Non-dollar trading

Sanctions on Russian access to the dollar were also first mooted in 2014.

Since then, Russian oil companies have pushed to increase trade in alternative currencies, and added mechanisms in contracts to allow for payment in different currencies, if necessary.

Oil producers including Rosneft and Gazprom Neft have said the option to pay in alternative currencies is included in many supply contracts.

The majority of Russian oil is still traded in dollars, however.

The Central Bank of Russia said in a statement Nov. 1, 2021, that two-thirds of export contracts for hydrocarbons are in dollars.

"Nevertheless, during 2013–2019, the US dollar was largely replaced in servicing the export flow by settlements in euros and Russian rubles. Thus, the share of the US dollar in 2013–2019 decreased by 17.6%, while the share of the euro and the Russian ruble increased by 11.5% and 4.8% respectively," the statement said.

If sanctions restrict Russia's access to the dollar, some traders said that they could work around that by using alternative payment terms or sleeving through a third party, which could be relatively easy.

The threat of these new financial sanctions comes at a time when sources said there were few alternatives to Urals in the spot market. This is particularly true in the Mediterranean as it is already tight, which could force buyers to look for a solution to any sanctions or payment issues.

Talks on the security situation in Ukraine are set to continue in coming days. Advisors from Russia, Ukraine, France and Germany are due to meet Jan. 26. French President Emmanuel Macron is also due to discuss the situation with Russian President Vladimir Putin via phone Jan. 28. On Jan. 25, US President Joe Biden said potential sanctions could target Putin personally if Russia invades Ukraine