Russia's Crimea
A participant wears a Russian flag during a pro-Russian rally outside the regional administration in Donetsk on March 17, 2014. Reuters

As economic sanctions against Russia appear to have had little effect on the Kremlin's occupation of Crimea and threats against Ukraine, the West is running out of ideas, but there is one drastic, "nuclear" option that's still on the table. The SWIFT (Society for Worldwide Interbank Telecommunication) banking mechanism is used by every bank and every country in the world, and without it, countries cannot be connected to the global marketplace. If it were taken away from Russia, it could crash the economy and bring unimaginable pain to the Russian population.

Campbell Harvey is a Duke University professor who specializes in financial markets and global risk management. He spoke exclusively to International Business Times about the economic sanctions against Russia and what the future holds.

IBTimes: Do you think we’re getting any closer to the “nuclear option”?

Harvey: It will be a lot closer if Russia actually invades eastern Ukraine. There are other options that would happen before this financial nuclear option. The problem with this option is it’s not something the U.S. can just flip the switch on, because this organization [SWIFT] is based in Belgium. So even with the Iran SWIFT sanctions, it was actually pretty difficult to pull it off. The U.S. had to threaten sanctions on SWIFT.

IBTimes: How likely is that scenario and how quickly could the U.S. do this?

Harvey: What makes it a little less likely is just how involved Europe is with Russia. For the U.S., it doesn’t really matter; the amount of trade they do with Russia is very small, but for European countries, basically there is very little growth in Europe except for the U.K. and Germany, so this would a substantial hit if they lose those export markets.

However, they need to convince SWIFT to do this. If you’re talking about types of things they could do, they could do it very quickly, like freeze Russian assets, although time is running out for that because the Russians are doing risk management 101, which is repatriate or send the assets to safe havens, outside of Europe and the U.S. There are other things that are possible that are less draconian, and they could be done very quickly. For example, one thing that is a really big deal is liquid natural gas. The U.S. could very quickly approve exports, which could fill the gap in Europe in the short term.

IBTimes: Will the U.S. do this unilaterally?

Harvey: They could put pressure on SWIFT to do something. It would seem to be that would be a lot more forthcoming if it was also supported by a key European ally. For example, the amount of export trade that the U.K. does with Russia is approximately 1 percent, and it’s the same with the U.S., but Germany, that’s a totally different story. 3.3 percent of exports go to Russia, so that’s a lot of pain.

IBTimes: People have read about the economic options that have already been exercised as well as the the worst-case scenario, but what comes before cutting Russia from SWIFT?

Harvey: The No. 1 thing, and we’re only talking about financial things, would be a bigger freeze of assets. This would be a much broader freeze of assets. That’s the easier thing to do, and there could be some sanctions on some particular industries. That kind of falls in a different category, but the next financial option you can pull is a sort of system-wide SWIFT sanction.

IBTimes: Doesn’t that mean the Russian population could suffer?

Harvey: Well, they are already suffering. Effectively Russian is in recession right now, and that will push them into a deeper recession. The ruble is falling, the stock market is falling and the pain is already occurring in Russia and the whole idea here is that given what the likely outcome is, if they use the financial nuclear option, would plunge the Russian economy into a deep recession. What they are trying to do is change the cost-benefit analysis, so you are raising the cost, so even if he [Vladimir Putin] does go ahead and invade [Ukraine] and it’s successful, any victory would be a pyrrhic victory.

IBTimes: What right does the United States have to bring this kind of suffering to the Russian people and continue this role as the world’s police?

Harvey: Yes, there is suffering of the Russian people, in terms of economic implications, but there is also suffering for the people of Ukraine, so you could ask the same question of Russia. If there is any good thing here, if there is a war, it will be fought in the financial arena, so while we are talking about economic suffering, that just cannot be compared to the alternative, which is widespread loss of life.

IBTimes: What economic weapons does Russia have?

Harvey: The main weapon that they’ve got is their commodity exports, and what’s best known are the gas exports. Let’s put it this way: They could cut off the gas exports and then what would happen in Europe, prices would go up and alternative supplies would come in. There would be a time that would definitely be disruptive, but there would be some settling and eventually some equilibrium at higher prices. However, in doing that, Russia cuts off its source of financing, so it is a weapon that is very costly to use for Russia. Ideally, you’d like a weapon that does very little in terms of collateral damage.

IBTimes: Historically, Russia and its population have proven very resilient, so the question surely is, which side can withstand the most pain: Russian with sanctions against it or Europe with no gas?

Harvey: What you’re saying is based upon a long history of suffering. And yes, it’s true – talk about Stalingrad and the battles of World War II, and the suffering through the era of the Soviet Union. It is quite true, the Russian people are very resilient, but I think we need to be careful here, because this is not the Soviet Union anymore and Russia has been substantially Westernized and they’ve got used to a different type of economic environment. And if you start taking that away, maybe we can’t just say that history is just going to repeat, maybe the playing field has changed very substantially, so I think these sort of sanctions could be very effective.

IBTimes: Is this a bigger deal for Europe or the United States?

Harvey: There’s one subtle point that people might not realize, and that is that trade is so much more important in Europe than it is in the U.S. People don’t really realize that only 14 percent of U.S. GDP is exports, whereas in Germany it’s 52 percent. So exports are a much bigger deal in Europe than in the U.S., so I think that needs to be taken into account. We talk about the pain of the Russian people; well, this is not costless for Europe to do, but at some point you need to draw the line. What’s next? Where’s the next referendum?