22.10.2020

Russian oil shift on Western buyers of sanctions risks

The source Agency in Western oil companies, knowledgeable about the course of negotiations, stressed that all parts of one big process. “Russian oil companies are trying to absolve themselves of the sanctions risks to the extent possible”, – he explained. And noted that shoppers certainly don’t want to take all the risks and therefore try to find a compromise.

The company “Gazprom oil” also requires buyers to review the contracts in terms of the use of foreign currency to provide for the liability for delay or waiver of payment for delivered oil because of the sanctions.

Agency sources said that several Western companies have already managed to compromise with “Gazprom Neft” and “Surgutneftegaz”. One of the buyers of “Surgutneftegaz” has agreed to pay for oil in euros in exchange for refusal of the oil company from fines in case of non-payment because of sanctions. The parties managed to agree that in case of introduction of sanctions payment for the oil will be frozen in Bank accounts until the lifting of sanctions. “Just like with Iran,” he explained.

But most Western customers continues difficult negotiations with Russian suppliers, as still haven’t found a solution that would suit both sides.

At the time of publication, neither “Surgutneftegas” or “Gazprom oil” has not provided an operational review at the request of Forbes.

Previously, on 6 November, Reuters reportedthat “Rosneft” asks their Western counterparties to agree to changes in export contracts providing for fines for failure to pay for goods in time in the case of new U.S. sanctions, which complicate the calculations with Russian companies. A clause stating that sanctions should not change any obligations of parties included in the tender documents “Rosneft”, which was reviewed by the Agency. It provides that in the case of the counterparty of the agreement, he must pay Rosneft compensation.

Buyers of oil and oil products in Rosneft, including BP, Royal Dutch Shell, Total, Vitol and Gunvor have not agreed on the amendments to the contracts, sources told the Reuters among traders. But given the fact that Russian oil accounts for almost 10% of global supply, buyers cannot afford to ignore the interests of suppliers when awarding contracts.

USA and EU countries began to impose sanctions against Russia in 2014, after the annexation of Crimea to Russia and aggravation in the Southeast of Ukraine. Sanctions lists had been extended, was introduced sectoral sanctions. In the sanctions list made, including Rosneft and its CEO Igor Sechin, “Surgutneftegas” and its head Vladimir Bogdanov, and also the company “Gazprom Neft”.

Washington promised in the coming months to toughen anti-Russian sanctions.

The law “On countering the enemies of America by sanctions” (CAATSA), which entered into force in the United States January 29, 2018, provides for sanctions, including, in relation to Russian oil companies and the financial sector. This provides for secondary sanctions against foreign companies in case of their work with sanctioned Russian companies, said Forbes CEO “MC Sputnik – capital Management” Alexander Losev. Secondary sanctions just create the possible risks of non-payment for delivered Russian oil in dollars, because each dollar is controlled by non-cash financial US authorities.

Such non-payment risks of the Western partners in dollars and want to reduce Russian oil and gas companies, the expert said. To do this, they offer transfer payments for oil contracts in euros and penalties in relation to European buyers in the rejection of payments. “If the business will not be able to negotiate, and impose sanctions on the hardline Iranian scenario, it is impossible to exclude and political escalation to such an extent that it would bring down Western exchange,” said Losev.

Chief analyst at Promsvyazbank Bogdan Zvarich said that the actions of the Russian oil companies are preventative in nature and are designed to reduce possible risks. He explained that in case of introduction of new sanctions, the buyers of oil can be in a situation where they will not be able to transfer funds to the companies under sanctions for the already delivered oil. Hence the refusal of payment of exported oil in dollars with the transition to the Euro, which will allow Russian companies to protect themselves from possible restrictions on working with American currency. “In this case, oil producers propose the conditions that will lead to the return of the goods and/or punitive sanctions,” – said the expert.

He noted that in addition to reducing their own risk, Russian company in a strategic plan working towards de-dollarization of the economy, including a reduction in the volumes of the American currency in settlements with partners and the transition to payments in euros and national currencies.

Zvarych believes that the new requirements of the Russian companies on contracts with customers can have an impact on the oil quotes. “Such negotiations are neutral for oil prices, as they have only local value, and are more to the concomitant conditions, without affecting the fundamental factors in the formation of prices,” he said. But acknowledged that the application of certain sanctions to the Russian oil and gas sector can have a significant impact on the dynamics of the energy market and lead to higher prices. The United States understands this and, even within the framework of the sanctions against Tehran make temporary exceptions for major buyers of Iranian oil, trying to reduce the impact on the energy market.

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