Russian oil companies are experiencing significant delays in receiving payments for their crude oil and fuel exports, with some waits extending to several months. These setbacks are attributed to increased caution from banks in China, Turkey, and the United Arab Emirates (UAE) over the potential repercussions of U.S. secondary sanctions. According to eight individuals familiar with the developments, these payment disruptions are not only impacting the Kremlin’s revenue stream, making it more sporadic, but also align with the U.S. objective of penalizing Russia for its actions in Ukraine without halting global energy supplies.
In response to the geopolitical tensions, financial institutions in China, the UAE, and Turkey have heightened their sanctions compliance protocols in recent weeks. This heightened scrutiny has led to prolonged processing times for financial transactions to Russia, with some even facing outright rejection, as detailed by the informed banking and trading sources.
The banks’ heightened vigilance stems from concerns over the U.S. secondary sanctions. They now require clients to furnish written assurances confirming that no individual or entity from the U.S. Special Designated Nationals (SDN) list is partaking in or benefiting from the transactions.
Due to the sensitivity of the information, the sources remained anonymous and refrained from public comments. In the UAE, prominent banks like First Abu Dhabi Bank (FAB) and Dubai Islamic Bank (DIB) reportedly ceased several accounts associated with Russian trade. Meanwhile, other institutions such as the UAE’s Mashreq bank, Turkey’s Ziraat and Vakifbank, and Chinese banks like ICBC and Bank of China are still processing payments but with considerable delays.
While Mashreq bank opted not to comment on the matter, there was no response from the other banks when approached for statements. The Russian government acknowledged the payment difficulties, with Kremlin spokesperson Dmitry Peskov citing continuous pressure from the United States and the European Union on China as a contributing factor. Peskov emphasized that these challenges would not deter the ongoing trade and economic relations between Russia and China.
The backdrop to these banking challenges is a series of sanctions imposed by Western nations on Russia following its invasion of Ukraine in February 2022. The sanctions allow for the trading of Russian oil provided it is priced below the cap set at $60 per barrel. After initial disruptions post-invasion, the oil trade saw a temporary normalization as Russia redirected its oil exports towards Asian and African markets. However, concerns re-emerged in December when the reality of U.S. secondary sanctions became apparent, especially after a U.S. Treasury executive order issued on December 22, 2023, highlighted the risk of sanctions for bypassing the Russian oil price cap.
In response to the U.S. executive order, banks in China, the UAE, and Turkey have intensified their compliance measures, demanding additional documentation and training staff to ensure adherence to the price cap. The requirements for extra documentation aim to clarify the ownership and control of the entities involved in transactions to avoid breaches of the SDN list.
By the end of February, UAE banks faced increased scrutiny on their payment processes, especially for transactions routed through China on behalf of Russian entities, necessitated by demands from U.S. correspondent banks and the U.S. Treasury. This scrutiny resulted in payment delays to Russia, with reported delays ranging from a few weeks to two months. The impact of these delays is profound, affecting various types of transactions, including those in currencies other than the U.S. dollar, such as direct yuan-rouble exchanges, which are now subject to lengthy processing times.
