Barcelona / BrusselsThe decision of the Western allies to isolate Russia financially through the freezing of Russian central bank transactions and the exclusion of some financial institutions in the country from the Global Interbank Financial Telecommunication Society (Swift, for its may cause some chaos in the markets from this Monday, when the stock markets open, and may lead to a rise in the price of oil and gas, as well as aggravating the supply crisis, which had already shown strongly with the recovery following the first impact of the pandemic.
The first impact might be an increase in the price of gas and oil in Europe – a barrel of Brent will exceed $ 100, according to a dozen analysts consulted by Archyde.com – and might increase inflationary pressures in the Old Continent. That is why the European Central Bank (ECB) took the step last Friday at the meeting of EU finance ministers, in which its president, Christine Lagarde, recalled that the institution is not only analyzing the situation in depth. , but will “ensure” that all European citizens have quick access to liquidity and that it is “ready to take any decision needed to ensure price and financial stability in the eurozone.”
Possible boomerang effect
Western reluctance to use this letter also has to do with the fear that it will have a “boomerang effect” and end up impacting its economies, as some experts and European sources warn. “It has a cost for the West,” said Xavier Freixas, a professor of financial economics and accounting at Pompeu Fabra University, who specializes in banking and financial systems. “What we don’t know is how intense the rebound effect would be. It’s not at all clear that in the end the cost to those who impose the sanction will not end up being huge and unpredictable,” said the UPF professor of economics. José García Montalvo.
In a globalized economy in which Russia is a major trading partner of the EU and vice versa, many European, British and also US companies maintain intense trade relations with the ex-Soviet country. As a result, the exclusion of the Swift system is likely to prevent many Western companies from being able to collect their bills from Russian customers or buy from suppliers in that country. “The cost to the United States and to Europe can be very high,” warns Xavier Freixas, adding that “Russian companies will suffer greatly in the next three months.”
A surgical measure
That is why some countries, such as Germany, which are heavily dependent on Russian energy, and Italy, with strong economic ties, have opposed it until the last moment and have pushed for the measure to be as surgical as possible. According to EU sources, Brussels is working hard to ensure that the side effects are kept to a minimum. Therefore, it will only apply to selected entities, which have not yet been disclosed, and it is expected, for example, that energy transactions will not be affected. The measure is politically agreed, but must be published in legal documents for it to enter into force, a technical work that according to a second EU source will conclude “imminently”, specifically this Monday, according to European Commission Vice President for Economic Affairs Valdis Dombrovskis.
In fact, according to Freixas, it is not as definitive a measure as one might think. For this professor, to exclude Russian banks from the Swift code is to “cut off the main highway” from the country’s money, but they will look for other ways. For José García Montalvo, “everything goes through this pipe and if it is disconnected it has consequences for all parties”. Nevertheless, Freixas does see the possibility of a certain chaotic situation in the markets at the beginning and an impact on any transaction with Russia.
In addition, EU sources acknowledge that Russia is already looking for alternatives, and in fact this is what Freixas points out. Analysts consulted by Archyde.com explain that it will be possible to go back to older but valid systems, such as telex or fax. Moscow might also divert some of its foreign trade to China – Vladimir Putin’s regime and Xi Jinping’s Chinese have signed a trade deal – or seek alternatives to banks, such as fintech or cryptocurrencies. For García Montalvo, the cryptocurrencies, which use the blockchain, are virtually impossible to seize and offer the ability to trade without going through the western financial system and without using dollars. “The Russians have digital rubles and might send them to replace Western financial channels,” he said, adding that they might even launch cyberattacks to get more cryptocurrencies.
It is important to keep in mind the enormous impact that the measure finally approved this Friday in the technical field to freeze the Russian central bank’s transactions with the West can also have, which means freezing regarding 630 billion dollars. assets. The aim is to devalue the ruble and drive up Russian inflation to drown the economy. Both Freixas and Garcia Montalvo believe that Putin may have already planned his plans in the face of these Western sanctions, especially since the invasion of Crimea had already been discussed with the possibility of excluding Russian banks from the Swift. Freixas sums it up clearly: a blockade might prevent Europe from buying gas and the Russian financial system from collapsing. “We will be cold, and they will be hungry,” he said, adding that Putin already knew that, and that did not stop him.
