Circumventing tighter restrictions imposed this month by the United States on the foreign finance they can use, Russian oil companies will quickly find ways to work around those restrictions, says the media quoting multiple Russian oil industry sources.
The new restrictions are part of a fresh package of U.S. sanctions that U.S. President Donald Trump approved on Aug. 2 and cut the period that U.S.-based entities can provide finance to Russian energy firms from 90 to 60 days.
the sanctions were in part designed to sanction it for what U.S. intelligence agencies say was its meddling in the U.S. presidential election, something Russia denies and to punish Moscow further for its 2014 annexation of Ukraine’s Crimea peninsula.
Russia’s energy sector, its biggest source of revenue, was the primary target of the design of the sanctions.
the new steps were only incrementally worse than sanctions that have been in place since 2014 even though they are an inconvenience that could cause Russian oil companies to incur extra costs, the sources, who work for Russian oil firms and Russian and foreign oil trading houses, told the local media.
They said that oil companies had learned to adapt then and would do so again now.
When asked to describe how the industry was coping with the new curbs, one Russian oil trader, who spoke on condition of anonymity, reportedly said: “business as usual,” said one Russian oil
Still, the biggest direct impact even if there were ways to mitigate it, would be had by the restriction cutting the financing duration among all the various measures targeting the energy sector, said sources.
Russian energy companies from long-term Western debt of the kind they had used heavily to fund investments in new projects were essentially cut off by the initial sanctions, imposed in 2014 soon after Russia annexed Crimea.
However, the initial sanctions kept the door open to trade finance, the routine debt operations that most oil companies depend on by allowing financing lasting up to 90 days.
Until weeks after the shipment of oil has been delivered, the selling party usually does not get paid in full in crude oil transactions.
Sources said that Russian energy companies will have to become more resourceful now that the financing period has been reduced by a third, to 60 days.
The energy firms will free up cash of their own is one workaround, according to an oil trading source. Though the more likely scenario is that they will dip into their cash reserves, that could be done by selling off assets.
“The companies right now have significant volumes of liquidity,” said the trader, who did not want to be identified because he was not authorized to speak to the media.
Alternatively, by ensuring that the lender does not fall foul of the sanctions, energy companies can use external finance but first breaking it down into many increments. That requires more deals with more parties.
“It’s an increase in operational and financial costs,” said the second oil trading source.
the industry would adapt again because when the initial sanctions were imposed, the sector had already learned how to deal with a shorter financing window, another trader, who works for a major Western company, was quoted in the media.
“Okay, so it (the financing period) is being cut, that means we need to turn it around in 60 days, not 90,” said the trader. “You need to keep a close eye on it. But it hasn’t had a strong effect.”