[On the Brink: Ukraine Crisis] Russia to Block 'Dollar Payments'... Biden's Warning

[Image source=EPA Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina, Reporter Lee Hyunwoo] The background behind U.S. President Joe Biden’s strong warning to Russia, even pulling out the “ultra-strong financial sanctions” card at his first anniversary press conference, lies in the assessment that the threat of invasion surrounding Ukraine is that serious. It is literally seen as a hair-trigger situation where an attack could start at any moment. As the self-proclaimed “world’s policeman,” the U.S. finds itself in a situation where it must stop Russia and build joint countermeasures with allies such as the North Atlantic Treaty Organization (NATO).

At the press conference on the 19th (local time), President Biden anticipated that Russian President Vladimir Putin would not withdraw troops deployed near the border and would take some form of offensive action because he “has to do something.” This is due to the failure to find even a diplomatic breakthrough in the relay talks with Russia. Already, 100,000 Russian troops have been deployed along the Ukrainian border. For the U.S., this is the moment when it has no choice but to pull out the ultra-strong sanctions card.

President Biden declared, “The U.S. and its allies are ready to inflict serious harm on Russia,” and stated that Russian banks would not be able to process payments in “dollars.” This implies ultra-strong sanctions across economic, financial, and export sectors. By using the term “allies,” he also opened the door for countries outside Europe, which are direct stakeholders, to join the sanctions.

Among the ultra-strong sanctions being discussed is the immediate exclusion of Russia from the international financial messaging system (SWIFT). SWIFT is a system that allows financial institutions worldwide to make international financial payments using 8- or 11-digit codes. More than 11,000 major banks and financial companies worldwide use it. If access to this system is blocked, Russia’s dollar payments will be cut off, effectively expelling it from the international financial transaction network. Previously, during the Trump administration, when tensions around the Ukraine region escalated, the U.S. also toyed with the idea of blocking SWIFT, which Russia strongly opposed. The U.S. also used the SWIFT blocking card during sanctions on Iran in the past.

Russian President Vladimir Putin
[Photo by EPA Yonhap News]

If full-scale sanctions against Russia begin, it is inevitable that the global economy, including South Korea, will be impacted. This is because the supply chain crisis could intensify as imports of various mineral resources, including oil and natural gas from resource-rich Russia, become restricted. According to data from the U.S. Energy Information Administration (EIA), Russia’s share in the global mineral market is 49% for nickel, 42% for palladium, 33% for diamonds, and 26% for aluminum.

The impact on the South Korean economy is also a concern if dollar payments are blocked. As of 2020, the trade volume between South Korea and Russia was $6.9 billion in exports (about 8.2 trillion won) and $10.6 billion in imports. Major export items include automobiles, synthetic resins, and cosmetics, while major imports include naphtha, crude oil, bituminous coal, and natural gas. If the U.S. dollar payment block against Russia becomes a reality, damage to related export-import companies will be unavoidable.

Experts believe that given the potentially large repercussions of sanctions against Russia, both sides will focus more on finding diplomatic solutions rather than escalating to full-scale war.

Park Jeong-ho, head of the Russia-Eurasia team at the Korea Institute for International Economic Policy, said, “When the U.S. talks about dollar payment sanctions against Russia, one of the countries that suffers the most damage is actually the U.S.,” and added, “It is not easy for Russia to start a war immediately.” The U.S. imports most of the titanium, a key rare earth element important for aircraft manufacturing, from Russia. He added, “If war breaks out, not only dollar payments but also the entire energy export would be cut off, and public sentiment would decline, causing major setbacks to President Putin’s plans for re-election and long-term rule.”

President Biden also shook his head at the possibility of full-scale war on the same day. He said, “(President Putin) does not seem to want full-scale war yet. He will test the West.” He added, “The only thing I am certain of is that it is entirely President Putin’s decision.”

This content was produced with the assistance of AI translation services.