WOOD Flash - Russia: banking and macro - thoughts on the SWIFT debate and potential sanctions

In our recent conversations with investors, Russia’s possible exclusion from SWIFT is a topic that has come up frequently. We believe that this debate is more about trade between Russia and the EU, which has totalled >USD 250bn in the past twelve months. Russia supplies one-third of the EU’s natural gas and more than a quarter of its oil. If Russia-EU trade is to continue, the money has to go back and forth via some payment system. Therefore, we do not see a high likelihood of Russia’s removal from SWIFT. That said, clearly, the odds could change if the EU goes as far as severing its trade ties with Russia. If the geopolitical environment were to deteriorate meaningfully into a military conflict, which is not our main scenario (please click here for further details), sanctions targeting the OFZ secondary market, the energy sector and individuals are more likely scenarios, in our view.