Russian oil companies face months of delays in oil and fuel payments as banks in China, Turkey and the United Arab Emirates (UAE) fear secondary US sanctions, eight sources familiar with the matter told Reuters.

Payment delays reduce the Kremlin’s revenues and make them chaotic, allowing Washington to achieve the dual policy goal of sanctions – to affect the financial flow to Moscow, but without interrupting global oil and fuel supplies.

The problem comes at a time when Moscow is already struggling with oil supplies itself, and last week Bloomberg noted that Russian oil exports, which fund the Kremlin’s war machine, are finally slowing.

Problems due to the banks of China, Turkey and the Emirates

Several banks in China, the United Arab Emirates and Turkey have stepped up compliance with sanctions in recent weeks, leading to payment delays or even denials of remittances to Russia, according to eight banking and business sources.

Banks, fearing secondary U.S. sanctions, began requiring their customers to provide written assurances that no individual or entity on the list of Specially Designated U.S. Nationals (SDN) is involved in the transaction or is the beneficiary of the payment.

• Secondary (or additional) sanctions is a relatively new tool used by the United States to target entities that do business with regimes, individuals, or entities that do business within the scope of primary sanctions.

In the United Arab Emirates, First Abu Dhabi Bank (FAB) and Dubai Islamic Bank (DIB) have suspended several accounts related to trade in Russian goods, two sources told Reuters.

The UAE’s Mashreq Bank, Turkey’s Ziraat Bank and Vakifbank, as well as China’s ICBC and Bank of China continue to process payments, but it takes weeks or months, four of the sources said.

Russia has admitted that it has problems with raising money

Kremlin spokesman Dmytro Peskov acknowledged there were problems when asked about reports that banks in China had slowed payments.

“Of course, the unprecedented pressure from the United States and the European Union on the People’s Republic of China continues,” Peskov said during another press conference.

“This, of course, creates certain problems, but cannot become an obstacle to the further development of our trade and economic relations (with China),” said Peskov.

The West imposed a series of sanctions on Russia after it invaded Ukraine in February 2022. Trading in Russian oil is not illegal as long as it is sold below the Western-set price of $60 per barrel.

Russian oil exports and payments were disrupted in the first months of the war, but later recovered as Moscow redirected the volumes it sold in Europe to Asia and Africa.

“They understood that the danger of secondary sanctions is real,” a Reuters source said

“Trouble has returned since December as banks and companies realized that the threat of secondary US sanctions is real,” a trade source said, referring to a US Treasury executive order issued on December 22, 2023 that warned it could impose sanctions on bypass Russian price restrictions on foreign banks and require them to increase compliance.

This was the first direct warning of the possibility of secondary sanctions against Russia, which would put it on equal terms with Iran in certain areas of trade, Reuters noted.

Under the U.S. order, banks in China, the UAE and Turkey that work with Russia have stepped up checks, started asking for more documents and trained more staff to ensure transactions comply with the price cap, business sources said.

Additional documents requested may include the ownership of all companies involved in the transaction and the personal details of those who control the entities so that banks can verify any access to the SDN list.

“It became difficult and not only with dollar transactions”

In late February, UAE banks were forced to step up checks on payments as they were asked to provide data to US correspondent banks and the US Treasury Department if they made payments to China on behalf of a Russian entity, a banking source familiar with the matter said.

“This meant delays in processing payments to Russia,” one of the sources said. One source said one payment was delayed by two months and another by two to three weeks.

“It became difficult and not only with dollar transactions. “Sometimes it takes weeks to do direct RMB-RUB trading,” said one trader.

article photo: © Dmytro Melnikov | Dreamstime.com