Russia struggles to collect oil payments as China, UAE, Turkey raise bank scrutiny

MOSCOW: Russian oil firms face delays of up to several months to be paid for crude and fuel as banks in China, Turkey and the United Arab Emirates (UAE) become more wary of US secondary sanctions, eight sources familiar with the matter said.

Payment delays reduce revenue to the Kremlin and make them erratic, allowing Washington to achieve its dual policy sanction goals - to disrupt money going to the Kremlin to punish it for the war in Ukraine while not interrupting global energy flows.

Several banks in China, the UAE and Turkey have boosted their sanctions compliance requirements in recent weeks, resulting in delays or even the rejection of money transfers to Moscow, according to the eight banking and trading sources.

Banks, cautious of the US secondary sanctions, started to ask their clients to provide written guarantees that no person or entity from the US SDN (Special Designated Nationals) list is involved in a deal or is a beneficiary of a payment.

The sources asked not to be named due to the sensitivity of the issue and because they are not allowed to speak to media.

In the UAE, banks First Abu Dhabi Bank (FAB) and Dubai Islamic Bank (DIB) have suspended several accounts linked to the trading of Russian goods, two sources said.

UAE’s Mashreq bank, Turkey’s Ziraat and Vakifbank and Chinese banks ICBC and Bank of China still process payments but take weeks or months to process them, four sources said.

Mashreq bank declined to comment. UAE’s FAB and DIB banks, Turkey’s Ziraat and Vakifbank, China’s ICBC and Bank of China did not reply to requests for comments.

Kremlin spokesperson Dmitry Peskov said payment problems exist when asked about reports that banks in China have slowed payments.

“Of course, unprecedented pressure from the United States and the European Union on the People’s Republic of China continues,” Peskov told a daily conference call with reporters.

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

The West has imposed a multitude of sanctions on Russia after it invaded Ukraine in February 2022. Dealing with Russian oil is not illegal as long as it is sold below a Western-imposed price cap of $60 per barrel.

Russian oil exports and payments for it have been disrupted in the first months of the war but later normalised as Moscow re-routed flows to Asia and Africa away from Europe.

“Problems returned from December after banks and companies have realised the threat of US secondary sanctions is real,” one trading source said.

The source was referring to a US Treasury executive order published on Dec. 22, 2023, which warned it could apply sanctions for the evasion of the Russian price cap on foreign banks and called on them to boost compliance.

It became the first direct warning about a possibility of secondary sanctions on Russia, putting it on par with Iran in some areas of trade.