Interesting Week AheadIt appears that Putin will delay the potential invasion of The Ukraine for a few days in advance of a "Summit" meeting with Biden. IMO this meeting is unlikely to generate an agreement that will satisfy Putin in terms of his demands and frankly I see it as Putin merely "checking off another box" before the invasion begins. Over the years I have maintained friendship with Ukrainian friends from university (in fact my best man was Ukrainian) and they continue to have family and a network in The Ukraine. While the conventional knowledge and feedback from my American friends is that Putin was planning to invade tomorrow, my Ukrainian friends say that Putin's forces are not ready yet and it will take a few more days for this to happen. Hence Putin's wilingness to have another meeting with Biden? Probably.
So if Russia, invades The Ukraine what are the serious consequences that Biden says will happen?
The main tool in this threat is to ban Russia from the use of SWFT.
For those of you who have never used SWIFT or know about it, without going into detail, it is the mechanism to move money from a bank account of an entity in one country to the bank account of another entity in another country.
Russia has about 400 banks that are linked to SWIFT. That said, since 2014, the Russians have been building their own system and so have the Chinese. While these systems are still small relative to SWIFT, they do provide some degree of mitigation against Russia being banned from SWIFT.
The other issue is that countries that buy Russian oil and gas will still have to find a way to pay for it even if Russia is banned from SWIFT and this will further diminish the impact a SWFT ban.
So what might these "serious" impacts on Russia that Biden is talking about amount to?
From people I have talked to, they suggest a short decline in the Russian economy of about 5% and a significant devaluation of the Ruble which will have some inflationary impact facing Russians. This impact would be partially offset by an increase in Russia's gold reserves which is estimated at about 650 billion US$. Further one could expect that the Chinese would use this opportunity to aid Russia and gain greater control over Russia.
So what is the bottom line here?
In my estimation, if Russia does go ahead with the invasion, and Russia is banned from SWIFT there will certainly be some short term negative impacts on the Russian economy which potentially could be significant but that these impacts are not likely to be large enough to deter Putin as he has already got mitigating initiatives (which I referenced above) underway. The other aspect to all of this is what I refer to as Newton's Third Law - equal and opposite reaction - banning Russia from SWIFT will have negative impacts on the world's economy and especially in Europe. The potential disruption of the world banking system and energy trade by banning Russia from SWIFT IMO will likely have some short term negative effects on world stock markets while these things get sorted out.