Russian oil companies are experiencing delays in receiving payments for their crude and fuel, with banks in China, Turkey, and the UAE exercising caution due to concerns about U.S. secondary sanctions. This delay in payments, which can last several months, impacts the Kremlin’s revenue stream and creates unpredictability. The aim of these sanctions is to disrupt funds flowing to the Kremlin while maintaining stability in global energy markets.
Recently, banks in China, the UAE, and Turkey have heightened their compliance requirements, leading to delays or refusals in transferring money to Moscow. They are now requesting written assurances from clients that no individuals or entities from the U.S. Special Designated Nationals (SDN) list are involved in transactions.
In response to the tightening regulations, banks like First Abu Dhabi Bank and Dubai Islamic Bank in the UAE have suspended accounts associated with the trading of Russian goods. While some banks, such as Mashreq Bank in the UAE, Ziraat and Vakifbank in Turkey, and ICBC and Bank of China in China, still process payments, the process now takes weeks or even months.
Kremlin spokesperson Dmitry Peskov acknowledged the payment challenges, attributing them to pressure from the United States and the European Union on China. Despite these hurdles, Peskov expressed confidence in the continued development of trade and economic relations between Russia and China.
The implementation of sanctions follows a series of measures imposed on Russia after its invasion of Ukraine in February 2022. While dealing with Russian oil remains legal, transactions must adhere to a Western-imposed price cap of $60 per barrel. Initially disrupted, Russian oil exports and payments normalized as Moscow redirected flows to Asia and Africa.
However, challenges resurfaced in December following a U.S. Treasury executive order warning of potential sanctions for evading the Russian price cap. Banks in China, the UAE, and Turkey responded by increasing compliance checks, requesting additional documentation, and training staff to ensure adherence to regulations.
These additional documents include ownership details of companies involved in deals and personal data of individuals controlling these entities to mitigate exposure to the SDN list. UAE banks faced heightened scrutiny at the end of February, requiring them to provide transaction data to U.S. correspondent banks and the U.S. Treasury for payments going to China on behalf of Russian entities.
Consequently, payment processing to Russia has been delayed, with some transactions experiencing delays of up to two months. Even direct yuan-rouble transactions now face extended processing times, posing significant challenges for traders involved in the oil trade.
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