A 9 billion euro loan to Ukraine has been proposed by the European Commission, and lawyers are looking for ways to use frozen oligarchs’ assets to help the country rebuild after the war. The European Commission is already considering weaning Europe off Russian energy and businesses, but it’s unclear if this is enough. The Kyiv School estimates that the war has cost Ukraine $50 billion, so a cut to SWIFT will be a good start.
SWIFT cut-off for Russian oligarchs
A SWIFT cut-off for Russian oligarchy would lead to an economic implosion for the country, and the country’s economy would be crippled by the sanctioning of major oligarchs. The move would also deprive President Vladimir Putin of his access to his own wealth. However, Russia is bracing itself for this possibility. As a consequence, it has begun to develop its own alternative financial network called the System for the Transfer of Financial Messages (Swift). This network is expected to be comprised of at least 400 participants from 23 countries by 2020. While the decision to cutoff SWIFT for Russia may seem controversial, it is not the first time the country has faced this issue. The cutoff is a necessary measure. The UK has been a strong supporter of this move, and
In response to Russia’s invasion of Ukraine, world leaders have launched robust sanctions on Russia’s economy and oligarchs. In the United States, President Joe Biden has announced new sanctions against Russia, including a cut-off of the SWIFT system for Russian banks. In Ukraine, government officials have urged the West and the EU to cut off Russian banks from SWIFT.
Another potential consequence of a SWIFT cut-off is that Russian banks could turn to other payment methods. For example, if Russian banks are not allowed to use Swift, they could route their payments through China’s rival CIPS system. If the SWIFT cut-off were to happen, the use of alternative payment methods could increase, resulting in a decrease in transaction volumes and higher costs. In addition, selling goods to Russia will become much riskier.
Kyiv School estimate of $50bn in damages
According to a Kyiv School report, the total cost of rebuilding Ukraine’s infrastructure could amount to $50 billion. That estimate includes damages to power plants, factories, bridges, and roads. Other experts put the cost at $100 billion to $220 billion. Meanwhile, the government estimates the total damage to the country’s economy at $565 billion, or $48 billion for the state budget.
The EU has pledged $154 million to help Ukraine. These funds will go towards providing safe drinking water, medical assistance, cash assistance, and support to victims of gender violence. In addition to this, Russian forces shelled several locations in northeast Kharkiv, including Saltivka, Pyatihatki, and Oleksiyivka. In addition, the city of Brovary was shelled, causing extensive damage to its infrastructure.
The amount of money needed to rebuild Ukraine varies daily, as the conflict continues. The Centre for Economic Policy Research, an economist’s network, estimates that the rebuilding costs could range from $220 billion to 540 billion. At the higher end of the range, that’s about three times Ukraine’s pre-war GDP, and four times the EU’s foreign aid budget. The rebuilding efforts of Ukraine are crucial to ensure that the economy moves from oligarchic to dynamic and vibrant.
Rebuilding the country will require a plan, financing, and a process for allocating funds to projects. The Ukrainian government is already setting up a recovery fund, while various ministries are submitting rebuilding plans. However, the government’s finances are already being straining under the massive burden of reconstruction. Some people have suggested that frozen Russian assets could be used to fund the rebuilding. In any case, Ukraine is already heavily indebted and is likely to run out of money to repay its loans and debts.
Weaning Europe from Russian energy
US President Joe Biden has announced an initiative to wean Europe from Russian energy profits. He says that energy profits from Europe are used to fund Russia’s war in Ukraine. Biden, who spoke at an energy conference in Brussels alongside the European Commission president Ursula von der Leyen, also said that Russia has manipulated its neighbors by using the supplies it receives from Europe. To help Europe wean itself off Russian energy, the United States has pledged to supply the continent with enough energy to last two winters.
While the Ukraine case is unique, the lessons from this situation could apply to the Indo-Pacific region. Europe’s reliance on Russian energy limits the consequences that Moscow could face. The United States must balance economic interdependence with the need to think about its future security. Weaning Europe off Russian energy would reduce Moscow’s leverage and would increase U.S. security. But a significant risk is posed by the Europeans’ reliance on Russian gas.
Divesting from Russian businesses
Diversifying from Russian businesses has become increasingly popular, and has even sparked the decision to divest from the South African oil and gas industry. The rationale is a combination of corporate responsibility and external stakeholder pressure. Divesting from South Africa, for instance, was seen by many as a form of “corporate civil disobedience.” Diversification of the Russian economy is increasingly supported by Western companies as a way to improve human rights in the world and support democracy and freedom.
But what does divestment from Russian businesses mean? Well, it means that investors are saying goodbye to a potentially lucrative investment in the Russian economy. In addition to preventing investors from withdrawing their funds, divesting from Russian companies would also increase pressure on the Central Bank of Russia, which is already struggling to deal with the consequences of its aggressive actions in Ukraine. And if the sanctions are effective, it will affect Nord Stream 1 and other projects like this, as well as the international payments system Swift. Moreover, a massive divestment from Russian companies could have devastating effects on the Russian economy.
Some investors may be wary of the idea of divesting from Russian companies, but it is not impossible. Many leading foreign companies have already made plans to exit the country. In fact, Apple, McDonald’s, and Starbucks have already halted operations in the country. Many other international companies, including the US, have divested from South African companies as a way to fight apartheid. Now, the same thing could happen in Ukraine.
Closing European markets
The European Commission (EC) has proposed a nine-billion-euro loan to Ukraine to help rebuild the country after the conflict. To accomplish this, the EU has appointed lawyers to examine ways to use the frozen assets of Russian oligarchs for reconstruction. This move could be beneficial for both sides, as the money could help Ukraine rebuild in a more timely and coordinated way.
The ECB’s decision to freeze the Russian oligarchs’ assets is not a simple one. It would require a high-profile court ruling, and there’s no guarantee that Russia would comply. But if it doesn’t, the U.K. may find itself in a bind. Its foreign policy department is concerned about its image and may not want to target Russia’s most wealthy citizens in the EU’s sanctions against Moscow. Similarly, it doesn’t want to jeopardize foreign investment in the U.K. as sanctions against Russia have escalated.
The EU may be trying to use frozen assets of Russian oligarchs as a primary offensive weapon. However, these efforts may backfire, leading Russia to seek another solution or enlist the Russian Orthodox Church to portray the conflict in nationalist and spiritual terms. This will likely make the reincorporation of Ukraine seem like a crusade for the Kremlin.
In addition to freezing the assets of the Russian oligarchs, the European Union has announced the freezing of their financial assets. The European Commission’s foreign policy chief, Josep Borrell, said this measure represents a “significant escalation of sanctions” on Russia. In the process, the EU has made Putin the third leader in the world to be personally sanctioned.
