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More expensive to trade with Russia now

Market uncertainty crystallises with banks’ halting credit for oil buyers

The global oil market was hurled into chaos last week after Russia invaded Ukraine, with top buyers of Russian oil struggling to secure guarantees at Western banks or find ships to take crude from one of the world’s largest producers.

What it means for Russian trade now
4 trading sources disclosed at least 3 major buyers of Russian oil were unable to open letters of credit from Western banks to cover purchases, sending shockwaves of market uncertainty. Russia produces every 10th barrel in the world and oil prices jumped to above US$105 per barrel on 24 February 2022, their highest since 2014, due to fears of disruptions.

Russia’s assault on Ukraine has prompted caution for shipping companies to avoid the Black Sea. Ship brokers and a senior Greek maritime ministry official revealed all Grecian vessels were directed to immediately leave Ukraine and Russia territorial waters in the Black Sea.

The oil market is already suffering from tight supplies due to years of low investment and amid booming demand as pandemic-linked restrictions ease around the world. Another source added banks are not willing to open Letter of Credits (LC) for the moment so it is a bit of a standoff. LCs are standard practice in commodities trading and guarantee the seller’s bank that payment will be made in full and on time. Top Russian oil buyers affected include Western oil majors such as BP and Shell, ENI, TotalEnergies, Equinor, Chevron and Exxon Mobil and trading houses such as Vitol, Glencore, Trafigura, Gunvor and Mercuria.

Another blow was the West’s collective consensus to cut off a number of Russian banks from the main international payment system, SWIFT. A joint statement from the White House dated 26 February 2022 wrote, “We commit to ensuring that selected Russian banks are removed from the SWIFT messaging system. This will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally. Second, we commit to imposing restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of our sanctions.”

As a country heavily reliant on SWIFT for its key oil and gas exports, joint sanctions are the harshest measures imposed to date on Russia over its Ukraine assaulting. Meanwhile, loading rates at Russian ports and discharge in northern Europe have tripled in one day to about US$2.3 million per ship, as many shipowners now refuse to call at Russian ports. A ship broker said some 90 per cent of shipowners are now assessing the situation. He added one explicitly announced their cessation to work with Russian counterparts.

Marine Online News Team
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