Russian oil companies face payment problems due to secondary sanctions

Russian oil companies experienced payment delays for crude oil and fuel of up to several months. According to Reuters, this is due to several banks in China, Turkey, and the UAE being afraid of secondary sanctions. However, experts suggest that the situation is not critical.
Eight sources cited by Reuters reported that payments for crude oil and fuel to Russian oil companies have been delayed for several months. Reportedly, banks in the UAE, China, and Turkey are requesting written guarantees from their clients that no individual or legal entity on the US SDN (Special Designated Nationals) list is involved in or benefiting from the transaction. This is due to their alleged fear of secondary US sanctions.

Sources report that banks have become more cautious and are now requiring additional documents following the US Treasury's Dec. 22 order imposing sanctions on foreign banks for evading price limits to ensure compliance.

The Kremlin spokesman Dmitry Peskov, when asked about reports that banks in China had slowed down payments, acknowledged that there were issues with payments. He also noted that there is unprecedented pressure from the United States and the European Union on China. During a daily teleconference with reporters, Dmitry Peskov stated that although certain problems exist, they should not hinder the further development of our trade and economic relations
However, it should be noted that this problem should not be exaggerated. They tend to blow issues out of proportion or interpret them to suit their needs. According to Igor Yushkov, an expert at the Russian Financial University and the National Energy Security Fund, Reuters' reputation is already tarnished due to scandals with other stories published. Therefore, their information and data cannot be relied upon entirely.

Secondly,Yushkov noted that if the problem was as large-scale as the agency imagines and Russian companies have not received payment for several months, why have they not reduced their supplies?
Statistics indicate that despite reports of India's refusal to purchase Russian Sokol oil this year, exports of Russian oil and petroleum products are increasing. However, this situation has not impacted the overall statistics. The majority of India's imports came from the Urals brand, rather than Sokol, and Indians will continue to purchase Russian oil. China is increasingly purchasing Russian oil, including small volumes of the Sokol brand oil, due to a recovery in demand. According to statistics, China has even surpassed India in terms of imports of Russian oil this year, which is transported by sea without taking into account the supplies via oil pipelines.

There has been no slowdown in exports, as foreign news agencies have reported. Bloomberg confirms that Russian oil exports are recovering despite the tightening of sanctions against tankers.

Nikolai Dudchenko, an analyst at Finam Financial Group, notes that Russian oil supplies by sea increased to 3.32 million b/d over the past week. On average over the past four weeks, deliveries to Asia amounted to 2.93 million b/d compared to 2.86 million b/d for the same period earlier.
According to Yushkov, the export volumes have remained unchanged, indicating that the issue may not be as significant as it is being portrayed.

He believes that financial settlements were problematic in 2022 and 2023 and will continue to be so in 2024 due to the constant imposition of new sanctions by the Americans on structures involved in the sale of Russian goods, including energy products.

According to the FNEB expert, the Americans are concealing a part of the scheme, but a new one is being formed. The strategy of American sanctions is to suppress oil and fuel exports from Russia without completely halting them. For instance, studies in the West calculate the number and type of tankers transporting Russian oil, but total sanctions against these vessels are not imposed. Instead, specific restrictions are periodically introduced against certain tankers. The same strategy applies to banks.
The FNEB expert explains that, according to him, the US aims to keep all participants in the Russian oil trade in suspense to maintain high costs for Russia. This includes costs for financial intermediaries, more expensive freight rates, and discounts. However, Russia should not reduce exports as this could lead to shortages and rising prices on the world market. The expert also notes that if Russia were to reduce exports, the Americans would suffer more than Russia.

Increasing global oil prices have a direct impact on gasoline prices in the United States and can lead to inflation throughout the country. The current presidential administration is hesitant to take risks in normal years, but in a pre-election year, it is even more cautious.

Meanwhile, as the confrontation continues, the United States will continue to try to impose restrictions on the export of Russian hydrocarbons. There is no indication that payment delays have become critical for the business. However, this factor is unfavourable for business as it disrupts the rhythm of cash flows, posing a possible risk of liquidity loss. As the chairman of BRICS this year, Russia will actively promote the transition to alternative payment systems among participating countries. According to Nikolai Dudchenko, the creation of such a system would increase the role of settlements in the Chinese national currency, leading to the 'Yuanization' of neutral economies.