Russian oil exports continue despite payment issues

Russian oil exports continued to flow to Europe and onwards on Friday, even as Russian sellers and Western buyers said they struggled with payments, banking guarantees and shipping after the West imposed sanctions on Moscow for attacking Ukraine, according to traders, port agents and shipping data obtained by Reuters.

Following Russia’s invasion of Ukraine on Thursday, the European Union and the United States announced measures to curb Moscow’s access to financing, including sanctions targeting its main banks, making it extremely difficult for Russian oil companies to process payments for their goods.

Russia has kept its exports of crude oil and refined products going, but sellers said there was no strong guarantee that they will be paid for the volumes as banks were studying the terms of the announced sanctions and the market had no clue what they will decide.

“Letter of credit is a bank guarantee, but now it’s quite useless as after sanctions, no Western bank wants to guarantee anything for Russian sellers”, a source with a major Russian oil company said, adding that one may just make payments on “open account” terms as it is not a big difference now.

Letters of credit from the bank of the buyer are standard practice in commodities trading and guarantee the seller’s bank that payment will be made in full and on time.

Open account is a sale where the volumes are shipped and delivered before payment is due. It is extremely risky for the seller and the best option for the buyer.

On Thursday, Western buyers said they had been having issues opening letters of credit for Russian oil volumes.

Many of the buyers and shipping companies also have refrained from purchasing Russian oil while they figure out the sanctions. Selling Urals crude for March loading was very difficult, which has pushed its discount to Brent to all-time lows, traders said.

Swedish refiner Preem said that it “had paused all trading in Russian crude oil pending further information on possible sanctions.”

Companies may try to divert their accounts to other banks, not subject to sanctions, which may help a little, another source with a Russian oil company said, but that takes time and not every bank can offer this service.