"The West is rolling out increasingly tough sanctions on Russia, but it is going out of its way to preserve the country's biggest source of revenue: energy exports.
In the latest example, the European Union said late Saturday that it had agreed with the U.S., the U.K. and Canada to eject some of Russia's banks from the global financial system's payments infrastructure, Swift. The move, if applied to all banks, would be powerful, essentially blocking money transfers in and out of the country. By cutting only some, Western countries are allowing payments, including for energy, to continue through banks not under sanctions.
Russia is one of the world's top oil and natural-gas producers, and energy exports represent half of the country's foreign sales. The country, now embroiled in a bitter war in Ukraine, provides around 40% of Europe's natural gas. The commodity heats the continent, fuels many of its power plants and is a critical input for a range of industrial processes. Russia's crude production is a major factor in the global oil marketplace.
As the U.S. and its Western allies wage economic war against the Kremlin to coerce it into abandoning its invasion of Ukraine, policy makers have tailored their pressure campaign to protect their energy supply, prevent a surge in oil prices and minimize the damage to their own economies.
"You can't get away from the fact that Europe still has a dependency on Russia," said Justine Walker, head of sanctions and risk at the Associate of Certified Anti-Money Laundering Specialists, even as observers argue the exemptions for energy sales dilute the sanctions' impact.
The U.S. imposed sanctions on Russia's largest banks -- Sberbank and VTB -- but provided broad exemptions on payments for purchases of crude oil, natural gas, fuel and other petroleum products. The EU, meanwhile, chose not to impose sanctions on them for now. Banks under current sanctions will be kicked off Swift, but others will be allowed to stay.
A senior Biden administration official said on Saturday that officials were carefully selecting which Russian banks to eject from the Swift network to minimize disruption of energy markets.
"We know where most of the energy flows occur, through which banks they occur," the official said. "And if we take that approach, we can simply choose the institutions where most of the energy flows do not occur."
The exemptions enable European nations and others to continue buying Russian gas and oil. That tempers prices, including for oil, which have jumped by roughly 40% over the past three months over concerns of disruption to oil markets from a conflict in Ukraine.
Higher oil prices boost the amount of money Russia makes for every barrel sold, and spur inflation across the world.
The Russian banks that aren't under sanctions include Gazprombank, Russia's third-largest bank and a key channel for foreign payments for oil and gas. Those banks provide an alternative channel for those payments.
The U.S. Treasury also issued exemptions for agricultural exports such as grain, another significant Russian export, and medical and other humanitarian supplies.” [1]
1. The Ukraine Crisis: Measures To Spare Banks Involved In Energy
Kowsmann, Patricia; Talley, Ian. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 28 Feb 2022: A.12.
