Analysis | Think fast: How SWIFT and competing networks draw us closer to a new cold war


Emilio Lugo

Using an ATM in Brazil. (Image: Eduardo Soares on Unsplash)

On January 30th, 2023, news outlets announced that Russia and Iran had linked their financial communications and transfer systems in a move designed to mitigate the effect of sanctions. Each state had been cut off from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), with Iran losing access in 2018 after backing out of the 2015 Joint Comprehensive Plan of Action, and Russia being cut out following the invasion of eastern Ukraine in 2022. This new development by two nations hostile towards the West warrants an assessment of how financial systems may provide a global wedge into forming a new Cold War. SWIFT’s monopoly on global financial flows faces potential erosion, and the United States and the European Union need to implement creative policies to maintain SWIFT’s financial dominance.


SWIFT is an international financial telecommunications network headquartered in Belgium that enables the transfer of payments across the planet. Over 11,000 banks in nearly every country utilize the system to conduct business. Without being connected to SWIFT, countries and financial institutions find it difficult to send or receive international payments, limiting their ability to trade with the rest of the world and damaging their economy. While the Russians remained mum on the announcement, the deputy governor of Iran’s Central Bank elaborated that over 700 Russian banks and 106 non-Russian banks from thirteen different countries will be a part of this newly established network. Compared to the technology and global reach of SWIFT, this move hardly challenges the Western-established system. However, it is not the numbers that signify the dangers of this newfound union; the danger is the signal being sent to the rest of the world that, perhaps, there is a non-Western alternative out there. For nations that share an anti-Western sentiment, the Russo-Iranian initiative could be the start of a new beginning. For the United States and its allies who are aiming to uphold the current liberal international economic order, perhaps this is the smoke before the fire.

Having a single global financial network enables authorities to observe transactions between entities, which provides some level of insight on the activities of those who seek to cause harm. In the early years of the Global War on Terrorism, the George W. Bush administration initiated the Terrorist Finance Tracking Program (TFTP), coordinated by the Department of the Treasury and the intelligence community. The TFTP used the SWIFT system to monitor monetary transfers to identify, track, and target terrorists and their operations to great effect. While initially covert, its public revelation in 2006 hampered anti-terrorism efforts until the United States and the European Union negotiated an agreement over the use of data being compiled from SWIFT servers. The interruption of this program to resolve the U.S. — EU legal disputes provides a framework for understanding the dangers of the agreement between Iran and Russia. A financial network composed of U.S. adversaries who then control access could become a haven for the financing of rogue regimes and terrorist networks.

Why SWIFT’s competitor will not emerge… yet

This hypothetical situation of archrival financial institutions sounds perilous for Western interests, but the reality is that few countries could jump ship from SWIFT without consequence. Russia and Iran are subject to similar sanctions by the same group of countries. Part of the stipulations of the sanctions package placed on Russia after it invaded Ukraine in 2022 is the extension of sanctions to any state or entity that helped Russia bypass those sanctions. This is why China and other countries who support Russia’s actions or remain neutral provided Russia with little more than rhetorical support. Iran is the exception, as it has been providing Russia with drones for striking Ukrainian targets.

As partners in isolation, there are very few additional consequences Moscow or Tehran face for cooperating with each other. There would be immediate repercussions for any other country. While the international community does not yet know which states will also participate in the network, as the Iranian Central Bank claimed, it will not be too difficult to identify them. Using 2021 World Bank figures, a reasonable estimate is that probable participants in this new network would likely not exceed 3% of the world’s GDP or 10% of its population, which pales in comparison to SWIFT. Even without the threat of sanctions, for any state to decouple from SWIFT to join a nascent network would be a pyrrhic victory, akin to self-imposed sanctions.

Why SWIFT is in danger

Although countries discontent with the West are unlikely to remove themselves from SWIFT and risk damaging their economies any time soon, the existence of an alternative — however small — poses a potential limit to the efficacy of future sanctions. It is not hard to imagine countries aligned in opposition to the West joining this alternative financial system. Sanctions are the modus operandi of the current international system to punish states that violate established international laws and norms. It is a diplomatic alternative to armed conflict. However, if states come to suspect that market and investment access will be wielded as a weapon, economic interdependence may increase the likelihood of conflict as vulnerable states try to reduce exposure to global networks beyond their control. If regimes that oppose the liberal international economic order dominated by the United States and its allies find themselves threatened with sanctions, the Russo-Iranian network could offer some small measure of respite. While not significant yet, it reduces the cost of deviating from the established order. Both the strengths and weaknesses of SWIFT are found in the number of interconnected institutions within its network. Each market placed into economic exile may decide to join a community of discontents and strengthening the viability of a competitor system, and weakening SWIFT’s and the West’s position.

There are wedges already being driven between the Western-dominated SWIFT network and non-Western countries regarding the international financial status quo. In 2019, Saudi Arabia threatened the United States to sell its oil in currencies other than the dollar as a counter to proposed legislation that would subjugate the Saudis to American antitrust laws. Following the sanctions for its invasion of Ukraine, Russia demanded “non-friendly” countries pay for its gas exports in rubles and succeeded. China has ambitions to replace the dollar with the yuan, and already has its own financial network with the Cross-Border International Payment System (CIPS). In contrast to the network between Russia and Iran, CIPS alone already has nearly 1300 institutions across 100 countries linked. These developments demonstrate that there are countries that have the incentive, or have already begun, to insulate themselves from the globalized economy that is upheld by SWIFT.

Much of the speculation around a new Cold War focuses on the geopolitical dynamics between the United States and China concerning Taiwan. While some pundits believe China may invade Taiwan soon, other experts believe that an invasion of Taiwan is unlikely because it would be devastating in lives lost and the staggering damage it would inflict on the world economy. If these experts are wrong, though, would a conflict over Taiwan provide the impetus for China to join an alternative financial network to protect it from the sanctions?


While it remains to be seen whether this doomsday scenario plays out, the United States and the European Union should refine the SWIFT network to reduce costs and processing time and create other incentives to retain participation. This potential problem can only be prevented with carrots, not sticks. The weaponization of SWIFT access is an incredibly slippery slope, as doing so invites challengers to its financial hegemony. Solving it will also require the development of forward-thinking and outside-the-box policies and relations that mitigate the probability and incentive for any future nation to consider joining a rival financial network. The West would be wise to engage with developing economies in Africa, Southeast Asia, and Latin America to address how to further develop SWIFT to best meet their needs. Drawing in a larger pool of states with a vested interest staves off the threat of a rival network and better secures the future of SWIFT and the current international system. Failure to do so would only drive us towards a new Cold War, becoming a self-fulfilling prophecy centered not just around political ideologies, but underpinned by financial networks and institutions.

Emilio Lugo is a master’s degree candidate at the Pennsylvania State University School of International Affairs, where his interests focus on international security studies, intelligence, and data analysis. He earned his bachelor’s degree in political science at Penn State following eight years of service in the U.S. Navy.

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