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SWIFT Kick to the Russian Financial System

Article Summary
SWIFT is a global network of financial communication networks from which many Russian transactions have been banned
Economics teaches us that SWIFT ban workarounds won’t be easy to achieve
If the EU can reduce its dependence on Russian oil or natural gas, then the SWIFT system ban could be expanded.
Michael W. Brandl is Professor of Instruction at the University of Texas at Austin’s Department of Economics.
This post is a modified version of an article that originally appeared on’s Macro Updates blog.

In response to Russia’s invasion in Ukraine, a large number of countries, including the United States and European Union members, decided to ban Russian banks from using SWIFT. This small, obscure sector of the global financial system was suddenly brought to the forefront. What is the SWIFT system then? Why is it included in the sanctions against Russia? What economic factors are involved in banning Russia SWIFT?
What is SWIFT?
The Society for Worldwide Interbank Financial Telecommunications (or SWIFT for short) is an international financial information network. Before SWIFT, banks from different countries communicated with one another using teletype machines that were loud and cumbersome. These machines were akin to typewriters on steroids. These inter-bank communications were streamlined by SWIFT and made it possible for banks to communicate with one another using a standard.
Imagine Pryia, a Texas resident, wanting to send money to Meghana’s Tokyo bank account. Pryia gives her bank information about Meghana, including the SWIFT code or number of the bank, Meghana’s account number and the amount Pryia intends to send. Although the SWIFT system does not actually transfer funds, it does send important information about the funds.
The SWIFT system is a key component of our global financial system. This member-owned cooperative overseen by the G-10 central bank has more than 11,000 banks in over 200 countries and territories. SWIFT processes over 40 million messages each business day.
Without the SWIFT system banks would have to communicate with each other by phone or another method. This could prove to be time-consuming and cumbersome. If banks don’t have SWIFT access, there are many pitfalls.

Access to SWIFT and economic sanction
Economic sanctions have been used in the past to ban banks from using SWIFT systems. As a result of Iran’s nuclear program, banks in Iran were expelled from SWIFT in 2012. Russia was threatened with exclusion from SWIFT in 2014 for their actions in Crimea. Although the ban was not implemented, some claim it highlights the importance of SWIFT. The level of international trade that a country can engage with may be severely affected if it doesn’t have access to SWIFT.
This is why many countries joined forces in early 2022 to block Russia’s access SWIFT. However, sanctions still allowed energy transactions involving Russian banks. This was because the EU imports a lot of the natural gas from Russia. In 2021, the EU imported 45 percent of its natural gas from Russia. The EU launched REPowerEU on March 6, 2022 in response to its dependence on Russian oil. This plan aims to reduce EU’s Russian gas purchases by two-thirds by 2022.

SWIFT ban expansion
On May 30, 2022, the EU voted in favor of expanding the SWIFT ban to include Sberbank and Credit Bank of Moscow, as well as Russian Agricultural Bank. This announcement was part of a package which included nearly an entire ban on Russian oil imports into the EU. This action brings to ten the number of Russian banks that have been banned from SWIFT. It also includes the banks with the closest ties the Russian government. According to the Financial Times the ban now applies to more than 60% of the Russian banking market.
It is important that Sberbank be included on the SWIFT Ban List. Sberbank is not only the largest Russian bank by customers, but also the main route for Russian oil and gas payments. Gazprombank, Russia’s third-largest bank, and its subsidiary Gazprom, a Russian government-owned energy company, are still exempted from the new sanctions. The largest facilitator of Russian oil and natural gas exports to Russia, the bank is also the largest.
If the EU ends its dependence upon Russian oil and gas, it may be easier for it to expand the SWIFT ban to include Gazprombank. Experts argue that such a move would be detrimental to Russian exports and, by extension, severely cripple Russia.