As goes Germany, as goes Europe.
I don't know everything about SWIFT, is it a US run system? Can the USA block Russia and Europe continues with business as usual?
Regardless, if this is the case we are seeing a huge public split on the response to Russia.
I meant to answer this earlier, sorry for the delay.
SWIFT is a messaging service. It lets bank A order a transfer of funds to bank B. It’s not the only such service, but it’s the biggest one.
With that said, the challenge there is that the US doesn’t truly control it, and also it can be worked around. Othing stops Russia establishing its own service or using another existing one, though getting foreign banks to buy in would take work.
The real leverage the US has is the ability to sanction US dollar transactions. The Treasury Department’s Office of Foreign Assets Control is able to designate entities and even whole countries for sanctions regimes. Here’s where that matters:
Let’s say you’re the Sovereign People’s Republic of Fantasia. You produce a lot of coal but you need a lot of oil. You have a trading relationship with West Isle, who happen to produce quite a bit of oil.
Fantasia has the Fantasia People’s Bank, who deal with the Bank of West Isle. Thing is, major commodities aren’t traded in Fantasia Ruble or West Isle Dinars- they’re generally traded in US Dolllars for predictability, stability, and consistency. Neither the Fantasia People’s Bank nor the Bank of West Isle directly hold large US dollar holdings for trade. US law requires that US dollar banking happen through US banks. So, foreign banks will have a correspondent banking relationship with a US bank. They will hold an account (or accounts) at that bank, through which USD funds happen.
Say Fantasia buys $20m USD of oil from West Isle. The Fantasian People's Bank doesn't have the ability to directly send $USD to the Bank of West ISle. Istead, Fantasia People's Bank sends a message to their correspondent bank, JP Morgan Chase. They direct JP Morgan to send $20m USD to West Isle's correspondent bank account at Wells Fargo. The money is went, Wells Fargo test Bank of West Isle that they're now $20m USD richer, and boom, the oil is shipped. I'm simplifying, but this is the essence of it. Fantasia gives West Isle $20m USD, but those USD never actually leave the US banking sytem.
What the US can do is to block individuals, corporations, or whole countries from access to this correspondent banking, through sanctions regulations under various legislation. Say Fantasia commits hostilities against a neighbour and the US gives a shit, US can direct that no US bank will deal with Fantasian banks, in the extreme case, or maybe with any accounts linked to certain Fantasian political figures. This has the effect of cutting off their legitimate access to a lot of international trade that's $USD denominated. North Korea, for example, is almost completely cut off in such a fashion. Doesn't mean they aren't able to engage in some trade, but normally there are layers of money laundering needed to pull it off. That makes it more expensive for them, and every now and then, their camouflaged activities in US banks will be detected and assets frozen. The US can also seek civil forfeiture of identified assets.
So, what the US could do would be selectively or broadly cut off Russian access to $USD correspondent banking. This would be devastating in the short term... But would also screw allies who buy necessary commodities form or sell them to Russia. Narrower, more targeted sanctions would be more likely. Rather than cutting off German imports of Russian gas through wholesale excision of Russia from $USD banking, they could go after individuals in the Putin regime, and businesses near and dear to them. Make it hurt for the political leadership.
Obviously the risk is that if the US overplays its hand, Russia, probably with China, moves to start commodity trade relationships in another currency. While there are major barriers to this, the juice could end up being worth the squeeze. I could see Russia trading commodities with Europe in Euro. Yen could be another sufficiently capitalized and stable currency for commodities trading. I'm sure China would love to push the Yuan for such a purpose. So the US needs to be careful that it doesn't play into China's long term hand.
There are layers and layers and layers to sanctions matters when you're dealing with a major foreign power with a lot of bilateral trade relationships. Sanctions can be extremely surgical, or extremely blunt. Blunt may work for the DPRK... Probably not so much for Russia, other than
maybe as a short, sharp shock.
www.cnn.com
flightaware.com
