The West imposes more severe sanctions on Russia, including SWIFT bans

The United States and Europe agreed Saturday to impose the most potentially crippling financial penalties on Russia for its unrelenting invasion of Ukraine, targeting the central bank reserves that underpin the Russian economy and cutting some Russian banks off from a vital global financial network.

The decision, announced as Ukrainian forces fought to keep Russian forces out of Kiev and residents sheltered in subway tunnels, basements, and underground garages, has the potential to spread the pain of Western retaliation for President Vladimir Putin's invasion to ordinary Russians far more than previous rounds of sanctions.

"Putin set out on a path to destroy Ukraine, but in doing so, he is also destroying the future of his own country," EU Commission President Ursula von der Leyen said.

Since Russia launched its invasion late last week, the European Union, the United States, the United Kingdom, and other allies have steadily increased the severity of their sanctions.

While US and European officials have stated that they are still working out the details of how to implement the latest sanctions and intend to exempt Russia's oil and natural gas exports, the sanctions in total could be among the harshest imposed on a country in modern times. If fully implemented, the measures will severely harm Russia's economy and severely limit its ability to import and export goods.

The moves were announced in a joint statement by the United States and its European allies as part of a new round of financial sanctions aimed at "holding Russia to account and collectively ensuring that this war is a strategic failure for Putin."

The central bank restrictions aim to limit access to the Kremlin's more than $600 billion in reserves, and are intended to limit Russia's ability to support the ruble as it falls in value due to tightening Western sanctions.

Officials in the United States said Saturday's actions were designed to send the ruble into "free fall" and promote soaring inflation in the Russian economy.

The collapse of the ruble would almost certainly cause inflation to skyrocket, affecting ordinary Russians as well as the Russian elites who were the original targets of the sanctions. If Saturday's measures are as harsh as described, the resulting economic disruption could leave Putin facing domestic political unrest.

Analysts predicted that Russians would intensify their bank runs and that government reserves would fall as Russians scrambled to sell their targeted currency for safer assets.

According to US officials, previously announced sanctions have already had an impact on Russia, causing its currency to fall to its lowest level against the dollar in history and its stock market to have its worst week on record.

The move on Saturday also includes the exclusion of key Russian banks from the SWIFT financial messaging system, which daily moves tens of billions of dollars between more than 11,000 banks and other financial institutions around the world.

Over the weekend, officials said the fine print of the sanctions was still being ironed out as they worked to limit the impact of the restrictions on other economies and European purchases of Russian energy.

When Russia invaded and annexed Ukraine's Crimea and backed separatist forces in eastern Ukraine in 2014, allies on both sides of the Atlantic considered the SWIFT option. Russia declared at the time that kicking it out of SWIFT would be tantamount to declaring war. The allies, who were later chastised for responding too weakly to Russia's aggression in 2014, shelved the idea at the time. Since then, Russia has attempted, with limited success, to develop its own financial transfer system.

The US has previously succeeded in convincing the Belgium-based SWIFT system to expel a country — Iran — due to its nuclear program. However, barring Russia from SWIFT could harm other economies, including those of the United States and its key ally, Germany.

Only on rare occasions has the West and its allies used all of its available financial weapons against a country. Iran and North Korea, two previous targets, played much smaller roles in the global economy, whereas Russia, with its vast petroleum reserves, plays a much larger role in global trade, and parts of Europe rely on it for natural gas.

The West's Saturday announcement of a partial disconnect from SWIFT leaves Europe and the United States room to escalate penalties later. Officials stated that they had not yet decided which banks would be disconnected.

The EU Commission president, von der Leyen, announced the measures in Brussels, saying she would push the bloc to "paralyze the assets of Russia's Central Bank" so that its transactions would be frozen. She added that disconnecting several commercial banks from SWIFT would "ensure that these banks are disconnected from the international financial system and harm their ability to operate globally."

"Blocking banks will prevent them from conducting the majority of their financial transactions around the world, effectively blocking Russian exports and imports," she added.

Getting the EU on board for sanctioning Russia through SWIFT had been a difficult process because EU trade with Russia totaled 80 billion euros, roughly ten times that of the US, which had been an early proponent of such measures.

Germany, in particular, had objected to the measure because it could have a significant impact on them. Foreign Minister Annalena Baerbock, on the other hand, stated in a statement that "after Russia's shameless attack... we are working hard on limiting the collateral damage of decoupling (Russia) from SWIFT so that it hits the right people." What we require are targeted, functional SWIFT restrictions."

In addition, the allies pledged to "take measures to limit the sale of citizenship — so-called golden passports — that allow wealthy Russians connected to the Russian government to become citizens of our countries and gain access to our financial systems."

This week, the group also announced the formation of a trans-Atlantic task force to ensure that these and other sanctions against Russia are effectively implemented through information sharing and asset freezes.

"These new sanctions, which include the exclusion of several Russian banks from SWIFT and the sanctioning of Russia's central bank, are likely to cause significant harm to the Russian economy and banking system," said Clay Lowery, executive vice president of the Institute of International Finance. "While details on how the new sanctions affect energy are still emerging, we do know that sanctions on Russia's central bank will make exporting energy and other commodities more difficult."

According to Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, "these measures will still be painful to Russia's economy." They reinforce earlier this week's measures by making transactions more complicated and difficult."

According to Ziemba, the severity of the sanctions' impact on the Russian economy will be determined by which banks are restricted and which measures are taken to limit the Central Bank's ability to operate.

"Regardless, escalating sanctions, such as removing banks from SWIFT and restricting the Central Bank, will make it more difficult to obtain commodities from Russia and will put additional pressure on the financial market."

Meanwhile, the US Embassy in Russia is warning Americans that non-Russian credit and debit cards are being declined in Russia. The American Embassy said in a tweet Saturday night that the problem appears to be related to recent sanctions imposed on Russian banks in response to Russia's invasion of Ukraine. According to the embassy, US citizens in Russia should be prepared with alternate payment methods in case their credit cards are declined. It also reminded Americans that the State Department advises them not to travel to Russia.