If Russia invades Ukraine, the U.S. retaliation may be entirely financial

Key takeaways:

• If President Vladimir Putin invades Ukraine, the Biden administration has various options for enforcing its vow to punish Russia financially.
• The European Parliament passed a nonbinding resolution calling for that action if Russia invades Ukraine.

The Biden administration has several alternatives to follow through on its threat to financially punish Russia if President Vladimir Putin invades Ukraine, ranging from penalties targeting Putin’s associates to shutting Russia off from the global financial system.

The US and its European partners have made no public mention of any plans to retaliate militarily if Putin deploys troops into Ukraine, a former Soviet republic with close historical and cultural links to Russia but now eager to unite with NATO and the West.

Instead, retaliation could be purely financial.

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Secretary of State Antony Blinken predicted financial hardship this week, promising “high impact economic measures that have refrained from using in the past.” 

On Friday, President Joe Biden stated that the United States had established the “most comprehensive and substantial package of actions to make it very, very difficult for Mr. Putin.

The US has imposed several sanctions against Russian entities and individuals throughout the last decade, many of them in response to Russia’s invasion and annexation of Crimea and its support for armed separatists in eastern Ukraine in 2014. 

Sanctions imposed by the United States have also aimed to punish Russia for election meddling, malicious cyber activity, and human rights violations.

Since 2014, the West has also assisted Ukraine in strengthening its military. So, while Putin denies planning an invasion, his troops would be up against a Ukrainian army that is far more capable of fighting back.

Asset freezes, prohibitions on doing business with US firms, and denial of entrance to the US are among the penalties now enforced on Russians. 

However, to punish Russia, the West has considered even more severe financial penalties over the years.

This includes the so-called nuclear option of excluding Russia from the SWIFT financial payments system, which is based in Belgium and transports money between thousands of institutions worldwide.

This year, the European Parliament passed a nonbinding resolution calling for that action if Russia invades Ukraine.

According to Maria Shagina, an expert on sanctions and energy politics affiliated with the Carnegie Moscow Center think tank, Iran lost nearly half of its oil export revenue and a third of its foreign trade when the US successfully pressured SWIFT to disconnect Iranian banks over the country’s nuclear program.

Shagina writes that the impact on Russia’s economy would be “equally severe.” More than a third of Russia’s state earnings come from oil and natural gas exports, and the country relies on SWIFT to keep the petrodollars flowing.

Since 2014, Russia has protected its domestic banking systems from such a cutoff. Indirectly, a SWIFT cutoff would hurt Western economies as well.

While “SWIFT is not off the table,” according to John Herbst, a former US ambassador to Ukraine and career diplomat, “it would be a last resort.”

The Biden administration restricted Russia’s capacity to borrow money earlier this year by prohibiting American financial companies from purchasing Russian government bonds directly from state institutions. However, because the sanctions did not target the secondary market, this might be the next move.

Other conceivable weapons and targets, according to Herbst, are financial restrictions against Putin’s close associates and their families, as well as further sanctions against Russian banks and the country’s crucial energy industry.

Source: Global News

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