Russian oil companies may have to wait many months to get paid for fuel and crude as banks in China, Turkey, and the United Arab Emirates (UAE) grow increasingly cautious about secondary sanctions imposed by the United States, according to a Reuters report citing information from eight people with knowledge of the situation,

In order to accomplish its dual policy sanction goals of disrupting money flowing to the Kremlin as retaliation for the war in Ukraine without disrupting global energy flows, Washington has been able to cut revenue to the Kremlin and make it unpredictable through payment delays.

According to the eight banking and trading sources, a number of institutions in China, the United Arab Emirates, and Turkey have increased their criteria for adhering to sanctions in recent weeks, which has led to delays or even the rejection of money transfers to Moscow.

Aware of the U.S. secondary sanctions, banks began requesting written assurances from their clients that no individual or organisation on the U.S. Specially Designated Nationals (SDN) list is a party to a transaction or will receive a payment.

Because of the sensitivity of the subject and the fact that they are not permitted to speak to the media, the sources requested anonymity.

According to two sources, multiple accounts connected to the selling of Russian commodities have been suspended by First Abu Dhabi Bank (FAB) and Dubai Islamic Bank (DIB) in the United Arab Emirates.

Four sources added that while Chinese banks ICBC and Bank of China, Turkish banks Ziraat and Vakifbank, and UAE’s Mashreq Bank still handle payments, it takes weeks or months to do so.

Mashreq Bank opted not to respond. Turkey’s Ziraat and Vakifbank, the UAE’s FAB and DIB banks, China’s ICBC and Bank of China, and Turkey’s Ziraat did not respond to requests for comments.

When questioned about claims that Chinese banks had slowed payments, Dmitry Peskov, the spokesperson for the Kremlin, claimed that there are payment issues.

“Of course, unprecedented pressure from the United States and the European Union on the People’s Republic of China continues,” Peskov told a daily conference call with reporters.

“This, of course, creates certain problems, but cannot become an obstacle to the further development of our trade and economic relations (with China),” Peskov said.

Following their invasion of Ukraine in February 2022, Russia has been subject to numerous sanctions from the West. As long as Russian oil is sold for less than the $60 per barrel price cap set by the West, dealing with it is allowed.

During the early months of the conflict, Russian oil exports and payments were halted; but, as Moscow redirected flows to Asia and Africa rather than Europe, things eventually returned to normal.

“Problems returned from December after banks and companies have realised the threat of U.S. secondary sanctions is real,” one trading source said.

The insider was alluding to an executive order issued by the U.S. Treasury on December 22, 2023, which urges foreign banks to increase compliance or face penalties for circumventing the Russian price cap.

It constituted the first explicit warning regarding the potential for secondary penalties against Russia, placing it on par with trade restrictions against Iran.

According to the trading sources, Chinese, UAE, and Turkish banks who do business with Russia have stepped up their oversight, begun requesting additional documentation, and educated more employees in order to ensure that agreements adhere to the price cap since the U.S. directive.

In order for banks to verify if there is any exposure to the SDN list, additional documents may also contain information on the ownership of each company participating in the transaction as well as the personal information of the people in charge of the firms.

According to a banking source familiar with the situation, UAE banks were ordered to submit information to the U.S. Treasury and U.S. correspondent banks if they had any transactions going to China on behalf of a Russian firm, which forced them to increase payment scrutiny towards the end of February.

According to one of the sources, “this meant delays in processing payments to Russia.”

Two months had passed since one payment was supposed to be made, according to one source; two to three weeks had passed.

“It has become tough and not even for the dollar transactions. Sometimes it takes weeks for a direct yuan-rouble transaction to be executed,” one of the traders said.

(Adapted from Reuters.com)

Categories: Economy & Finance, Geopolitics, Strategy