The impact of a potential military conflict following Russia’s continued troop buildup along Ukraine’s border will reverberate beyond the frontlines, compelling the U.S. and Western allies to act on a number of fronts and perhaps pushing Russia and China closer together.
Russia is facing near-term sanctions as well as additional measures from the U.S., Britain and other Western partners for its cyberattacks and other efforts to destabilize Ukraine.
Depending on Russia’s next steps, Western countries are actively considering even harsher actions. For example, the West has threatened to remove Russia from SWIFT, a network that connects thousands of global financial institutions. Removing Russia from SWIFT is a “nuclear option” that would severely harm its economy. And a bipartisan group of senators is working on legislation they have characterized as the “mother of all sanctions” bills.
China is also watching closely for consequences on Russia for its potential further invasion of Ukraine. The West’s reactions to the Russia-Ukraine conflict could impact China’s decision-making process on forcibly “reclaiming” Taiwan.
Beyond Russia and China reinforcing each other’s political rhetoric during the current Russia-Ukraine crisis, continued economic pressure could push the two countries’ financial systems closer together. If the West removes Russia from SWIFT or imposes severe sanctions, China and Russia could partner their national payment systems to reduce the effect of these actions. This option has yet to be pursued, but the groundwork has been laid through agreements to use Russian and Chinese national currencies in future transactions.
Any move to avoid using U.S. dollars or euros for financial transactions would also impede the West’s ability to use sanctions and financial incentives to influence Russia or China’s actions on critical issues like human rights, trade and climate change policies.