Russia struggles to collect oil revenue

Russian companies have to wait up to several months to get paid for oil sales, as banks are wary of US secondary sanctions.

Some banks in China, the UAE and Turkey have stepped up their sanctions compliance requirements in recent weeks, leading to delays or even rejections of payments for Russian crude, eight sources at banks and trading houses told Reuters .

Specifically, banks require buyers of Russian crude oil to provide a written commitment that no individual or organization participating in or benefiting from this transaction is on the US SDN (Special Designated Nationals) list.

The SDN is a list published by the US government of individuals and organizations with which the country prohibits or restricts business transactions. Financial institutions are often required to comply with the SDN to avoid violating US legal regulations and sanctions.

The NS Captain crude oil tanker owned by Russia's Sovcomflot tanker group passes through the Bosphorus Strait in Istanbul, Turkey on February 22. Photo: Reuters

In the UAE, First Abu Dhabi Bank (FAB) and Dubai Islamic Bank (DIB) have suspended some accounts linked to Russian commodity trading. Meanwhile, Mashreq Bank (UAE), Ziraat and Vakifbank (Turkey), ICBC and Bank of China (China) are still processing transactions but it takes weeks or months.

Sources said payments were delayed by two to three weeks, even up to two months. "It's become difficult, not even with dollar transactions. Sometimes it takes weeks for a direct yuan-rouble transaction to be made," one trader said.

Kremlin spokesman Dmitry Peskov confirmed that the problem of delayed payments by Chinese banks still exists. According to him, the US and the European Union are maintaining unprecedented pressure on China. "Of course, this creates certain problems, but it is not an obstacle to the further development of our economic and trade relations," Mr. Peskov said.

The West imposed a series of sanctions on Russia after the Ukraine conflict in February 2022. Trading Russian oil remains legal as long as it is below the $60 per barrel ceiling they imposed.

Russian oil exports were disrupted in the first months after the conflict but normalized as Moscow switched to selling to Asian and African customers. However, by December 2023, collecting oil sales will become harder as banks and companies realize the threat of secondary US sanctions is real.

This follows a move by the US Treasury Department on December 22, warning that it could impose sanctions on foreign banks for evading the Russian oil price cap and calling for increased compliance.

At the behest of the US, Chinese, UAE and Turkish banks that work with Russia have stepped up scrutiny, begun demanding more documentation and trained more staff to ensure oil transactions comply with the price cap.

They also require both parties to the transaction to provide additional documentation, including details of the ownership of all companies involved in the transaction, and data on individuals controlling the parties to the transaction so that the bank can check whether they are on the SDN list.

Phien An ( Reuters )

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