What President Biden would rather leave unsaid are the reasons why we can’t fully cut Russia off from the system that makes global commerce go.
What President Biden would rather leave unsaid are the reasons why we can’t fully cut Russia off from the system that makes global commerce go.
W hen the news broke Saturday night that the Biden administration and our allies in Europe, Canada, Japan, and elsewhere were reversing course on their refusal to cut Russia off from the SWIFT communications system that facilitates global commerce and finance, my first reaction was: I’ll wait to see the fine-print.
And sure enough, subsequent reporting elucidated that, while SWIFT channels to Russia are being narrowed, they are not being closed. The West cannot afford to close them. Furthermore, SWIFT — the Society for Worldwide Interbank Financial Telecommunication, the messaging consortium that makes global commerce and finance go — is too valuable to be risked. Its exploitation as a political weapon against a major economy enmeshed in the international energy trade could encourage U.S. rivals to seek alternatives. What would be lost are great American advantages that the Biden administration, which is dependent on the support of woke-progressives, does not want to discuss out loud.
Talk of responding to Russia’s aggression against Ukraine by excluding it from SWIFT thus largely misses the point — intentionally so when Biden officials and their European counterparts are the ones doing the talking.
I posted a couple of columns last week about the sanctions imposed on Vladimir Putin’s regime over its unprovoked invasion of Ukraine, which also addressed the failure to exclude Russia from SWIFT (see here and here). Our editorials — both today’s and last week’s — have noted the unwillingness of Western officials to bring the SWIFT hammer down, and Rich and I discussed it on our latest TMR podcast.
We need to understand SWIFT, but not because it is vital for the uninitiated to grasp what the system does to facilitate commerce and finance. Nor is the point to chide Biden and our allies over their avoidance of a total exclusion of Moscow from SWIFT, which would be a truly punitive measure — a fact illustrated by the besieged Ukrainian government’s zealous lobbying for such an exclusion.
The salient point here is why the West won’t — indeed, can’t — fully cut Russia off.
Throughout Putin’s reign, even as he has mauled his neighbors, murdered and imprisoned dissenters, subjugated his people, and abetted other anti-Western regimes, our government and our allies have encouraged themselves and their economies to become intertwined with and even dependent on Russia.
The transnational progressives who dominate Western chancelleries have turned a blind eye to the execrable nature of Russia’s government, for what they see as the greater good. They’ve fallen prey to the fantasies that (1) heinous, authoritarian regimes will evolve into normal, enlightened governments if we pretend they are real democracies and integrate them into the global economy; and (2) the planet can be saved from climate catastrophe if the West weans itself off fossil fuels in favor of prohibitively expensive, unreliable, and unpopular renewables, even if that means empowering such energy-rich rogues as Russia — whose continued drilling for carbon-based fuels must nevertheless be indulged by the developed world because (a) authoritarian Russia is not going to forfeit its resource advantages, (b) the West has neither the will nor the capacity to make it do so, and (c) the West will continue to crave fossil fuels for the foreseeable future (Biden spokeswoman Jen Psaki’s inanities to the contrary notwithstanding).
During the last few years, as Russia menaced Ukraine after having annexed Crimea, and the West responded with tough talk and not-very-tough sanctions, officials in Moscow wailed that a SWIFT cut-off would be the equivalent of a “declaration of war.” To be sure, it would greatly complicate Russia’s capacity to do business, collect massive energy-commerce revenue, and exploit its foreign-currency reserves (which it has built up impressively, in hopes of cushioning the blow of more Western sanctions — a strategy that now looks irrational with the ruble collapsing).
But the West cannot fully exclude Russia from SWIFT, for two critical reasons.
First, Europe and, to a lesser extent, the United States are now dependent on Russian energy. The Europeans get 40 percent of their gas and a quarter of their oil from Russia, and we depend on Moscow for 7 percent of our oil. If we cut Russia off from the messaging system that facilitates global financial transactions, and Russia thus could not collect its oil revenues, Putin would turn off the taps.
It is not sufficient to concede that the West could not withstand this blow. Biden does not want to admit that his woke-progressive climate alarmism, which echoes Western Europe’s, has shackled U.S. energy production, such that there is no presently available American alternative to turn to if Russia retaliates. The result, which Biden also prefers not to mention, is that the U.S. and our allies are underwriting the Russian aggression that we all so decry. Western governments have put us in this repulsive position, with eyes open.
Second, Russia owes us a lot of money. Despite Putin’s years of rogue behavior, American and European governments have blithely continued doing business with Russia and encouraging the entanglement of our commercial and financial sectors with Moscow’s. As the Wall Street Journal reported over the weekend:
Foreign banks have about $121 billion in assets owed to them by Russian-based entities, according to the Bank for International Settlements. Of those, about $14.7 billion were owed to U.S. banks. A larger chunk—$25 billion—were each owed to Italian and French banks.
A SWIFT cut off would put payments on those debts at risk (as may the apparently ongoing crash of the Russian economy). The damage to American and Western economies in that case would be immense. Again, Biden does not want to mention this possibility. If he did, sensible people might ask what made our government think that interweaving our prosperity with Putin’s machinations was a good idea, and recall, e.g., the Obama-Biden administration’s welcoming of Russia into the World Trade Organization, its build-up of Moscow’s tech sector and boosting of U.S.-Russian economic ties, etc.
Consequently, Biden’s pitch has been to argue that cutting Russia off from SWIFT would be superfluous, because of other sanctions already imposed — e.g., restrictions on Russia’s central bank (which make it nigh impossible for the Kremlin to sell its debt and exploit its reserves to stabilize Russia’s currency), and the targeting of some Russian banks, businesses, oligarchs, and government officials.
It is not just that Biden does not want to address the reasons why fully excluding Russia from SWIFT would be impossible. The fact is that, even if a cut-off were a viable option, it would be a bad idea. This is because the SWIFT system yields distinct American advantages that would be put at risk if SWIFT were used as a political weapon. Biden is a captive of his party’s woke-progressivism, so arguments grounded in preserving and furthering American interests are anathema.
Do you remember the last time (probably the only other time) we had public discussions about SWIFT? It was all the way back in the Bush years, when the New York Times published classified leaks about the post-9/11 Terrorist Surveillance Program. In a nutshell, our spy agencies were exploiting SWIFT in order to map al-Qaeda and other jihadist organizations by watching how they moved money around. The resulting intelligence coup was even better than seizing the funds would’ve been. As our editorial today explains, SWIFT “gives the U.S. a window into international banking’s plumbing,” and thus “a degree of control.” This makes it a critical tool in our efforts to police against the financing of terrorism and the laundering of money by criminal enterprises.
Even more important is the great advantage the United States derives from being the world’s reserve currency. As I recently detailed, in the years since its 2014 annexation of Crimea was met by Western sanctions, Russia has labored to de-dollarize in order to reduce the West’s capacity to punish it economically the next time it steps out of line. One way it’s done this is to develop an alternative to SWIFT — the “Mir” payments system. Mir is still in its infancy and may never evolve into much. But Bejing is also working on a SWIFT alternative, which, backed by China’s far greater economic might, is closer to being viable. Both authoritarian regimes are American adversaries, and little would please them more than to see the dollar displaced as the world’s reserve currency.
Excluding Moscow from SWIFT would drive it deeper into the arms of Beijing, with which it has a burgeoning alliance and compatible anti-American ambitions. It would encourage the redoubling of their efforts to de-dollarize international commerce, and as global trade and finance make the world an ever smaller, more integrated place, we should want more than ever to maintain the dollar’s primacy. If we’d used our dominance of the global economy to require good behavior of states as the price of admission, rather than turning a blind eye as Russia reaped the benefits of commerce while continuing its evil ways, today’s tumult in Eastern Europe might not be happening.
But these are things President Biden would rather leave unsaid.