Russia struggles to collect oil payments as China, UAE, Turkey raise bank scrutiny

Turkiye Vakiflar Bankasi TAO

27/03/2024 06:00

(This content was partly produced in Russia where the law
restricts coverage of Russian military operations in Ukraine)
       MOSCOW, March 27 (Reuters) - Russian oil firms face
delays of up to several months to be paid for crude and fuel as
banks in China, Turkey and the United Arab Emirates (UAE) become
more wary of U.S. secondary sanctions, eight sources familiar
with the matter said.
    Payment delays reduce revenue to the Kremlin and make them
erratic, allowing Washington to achieve its dual policy sanction
goals - to disrupt money going to the Kremlin to punish it for
the war in Ukraine while not interrupting global energy flows.
    Several banks in China, the UAE and Turkey have boosted
their sanctions compliance requirements in recent weeks,
resulting in delays or even the rejection of money transfers to
Moscow, according to the eight banking and trading sources.
    Banks, cautious of the U.S. secondary sanctions, started to
ask their clients to provide written guarantees that no person
or entity from the U.S. SDN (Special Designated Nationals) list
is involved in a deal or is a beneficiary of a payment.
        The sources asked not to be named due to the sensitivity
of the issue and because they are not allowed to speak to media.
    In the UAE, banks First Abu Dhabi Bank (FAB) and Dubai
Islamic Bank (DIB) have suspended several accounts linked to the
trading of Russian goods, two sources said.
    UAE's Mashreq bank, Turkey's Ziraat and Vakifbank and
Chinese banks ICBC and Bank of China still process payments but
take weeks or months to process them, four sources said.
    Mashreq bank declined to comment. UAE's FAB and DIB banks,
Turkey's Ziraat and Vakifbank, China's ICBC and Bank of China
did not reply to requests for comments. 
    Kremlin spokesperson Dmitry Peskov said payment problems
exist when asked about reports that banks in China have slowed
payments.
    "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.
    
    U.S. EXECUTIVE ORDER
    The West has imposed a multitude of sanctions on Russia
after it invaded Ukraine in February 2022. Dealing with Russian
oil is not illegal as long as it is sold below a Western-imposed
price cap of $60 per barrel.
    Russian oil exports and payments for it have been disrupted
in the first months of the war but later normalised as Moscow
re-routed flows to Asia and Africa away from Europe.
    "Problems returned from December after banks and companies
have realised the threat of U.S. secondary sanctions is real,"
one trading source said.
    The source was referring to a U.S. Treasury executive order
published on Dec. 22, 2023, which warned it could apply
sanctions for the evasion of the Russian price cap on foreign
banks and called on them to boost compliance.
    It became the first direct warning about a possibility of
secondary sanctions on Russia, putting it on par with Iran in
some areas of trade.
    Following the U.S. order, Chinese, UAE and Turkish banks
that work with Russia have increased checks, started asking for
extra documentation and trained more staff to make sure deals
were compliant with the price cap, the trading sources said.
    Additional documents can also include details on the
ownership of all companies involved in the deal and personal
data of individuals controlling the entities, so that banks can
check on any exposure to the SDN list.
    In the end of February UAE banks had to rise payment
scrutiny as they were asked to provide data to the U.S.
correspondent banks and the U.S. treasury if they have
transactions that go to China on behalf of a Russian entity,
according to one banking source familiar with the matter.
    "This meant delays in processing payments to Russia," one of
the sources said.
    One source said one payment had been delayed by two months,
while another said the delays amounted to two to three weeks.
    "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.

 (Reporting by Reuters reporters in MOSCOW, Aizhu Chen in
SINGAPORE, Engen Tham in BEIJING, additional reporting by Ziyi
Tang, Florence Tan, Can Sezer, Jonathan Spicer, Federico
Maccioni, Nidhi Verma, Hadeel Al Sayegh and Kevin Huang; editing
by David Evans)