Rus­sia clashes with Western oil buy­ers over new deals

Gulf Times Business - - BUSINESS -

Rus­sian en­ergy ma­jors are putting pressure on Western oil buy­ers to use eu­ros in­stead of dol­lars for pay­ments and in­tro­duc­ing penalty clauses in con­tracts as Moscow seeks pro­tec­tion against pos­si­ble new US sanc­tions.

Seven in­dus­try sources told Reuters that Western oil ma­jors and trad­ing houses have clashed with Rus­sia’s third and fourth big­gest pro­duc­ers, Gazprom Neft and Surgut­neftegaz, over 2019 oil sales con­tract terms dur­ing un­usu­ally tough an­nual rene­go­ti­a­tion in re­cent weeks.

The de­vel­op­ment mir­rors a sim­i­lar stand-off be­tween Western buy­ers and Rus­sia’s top oil pro­ducer, Ros­neft.

Ear­lier this week, trad­ing sources told Reuters that Ros­neft wants Western oil buy­ers to pay penal­ties from 2019 if they fail to pay for sup­plies in the event that new US sanc­tions dis­rupt sales.

Now sources have told Reuters that Surgut­neftegaz and Gazprom Neft have also clashed with their buy­ers over penal­ties and the use of eu­ros and other cur­ren­cies to re­place the dol­lar in con­tracts. “It is part of the same trend — the Rus­sian oil in­dus­try is work­ing on mit­i­gat­ing new sanc­tions risks.

The buy­ers in turn ar­gue they can­not carry those risks so we are try­ing to find com­pro­mises,” said one source with a Western buyer in­volved in ne­go­ti­a­tions, ask­ing not to be named as the talks are con­fi­den­tial.

Rus­sia has been un­der US and EU sanc­tions since 2014 when it in­vaded Ukraine’s Crimean penin­sula.

The sanc­tions have been re­peat­edly widened to in­clude new com­pa­nies and sec­tors, mak­ing it tough for Rus­sian oil firms to bor­row money abroad, raise new cap­i­tal or de­velop Arc­tic and un­con­ven­tional de­posits. Pres­i­dent Vladimir Putin’s ad­min­is­tra­tion has been hop­ing for a thaw in re­la­tions with the United States since Pres­i­dent Donald Trump came to power but Wash­ing­ton has im­posed new sanc­tions in­stead, in­clud­ing on some of Rus­sia’s rich­est peo­ple.

Rus­sian busi­nesses are pre­par­ing for a new wave of sanc­tions ex­pected in the com­ing weeks.

The firms are try­ing to di­ver­sify away from dol­lar pay­ments and tap­ping Asia for more of their fi­nanc­ing and tech­nol­ogy needs.

Ac­cord­ing to four in­dus­try sources, Surgut­neftegaz asked buy­ers to be pre­pared to switch from dol­lar to euro pay­ments in con­tracts, and in­sisted on buy­ers be­ing ef­fec­tively re­spon­si­ble for any losses aris­ing from sanc­tions.

“They ba­si­cally said — sanc­tions don’t mat­ter.

Buy­ers have to find a way to pay, or to re­turn pur­chased goods, or pay pe­nal- ties,” a source with a big trad­ing house said.

Gazprom Neft has also asked buy­ers to use eu­ros in pay­ments and bear fi­nan­cial re­spon­si­bil­ity for con­tract breaches in the case of new sanc­tions, ac­cord­ing to three sources. Gazprom Neft re­fused to comment.

Surgut­neftegaz did not im­me­di­ately re­spond to a Reuters re­quest for comment.

Rus­sia sup­plies over 10% of global oil, so dras­tic sanc­tions against it could lead to a steep spike in oil prices.

All global oil ma­jors rely on Rus­sia to feed their re­finer­ies, es­pe­cially in Europe and Asia, and hence they can­not just walk away from an­nual con­tract ne­go­ti­a­tions if they are un­happy with terms.

Talks with both Gazprom Neft and Surgut­neftegaz have been pro­gress­ing slowly and painfully, ac­cord­ing to trad­ing sources.

Sev­eral Western buy­ers have man­aged to agreed com­pro­mises with Surgut­neftegaz and Gazprom Neft, but oth­ers are still in tough talks with the pro­duc­ers, the sources said.

All Surgut­neftegaz’s con­tracts are be­spoke and are ne­go­ti­ated in­di­vid­u­ally in the Siberian town of Surgut by the firm’s man­age­ment and vis­it­ing Western trad­ing bosses. The sources de­clined to name com­pa­nies that have al­ready reached com­pro­mise deals.

In one such com­pro­mise, a large Euro­pean buyer agreed to the use of eu­ros in pay­ments in ex­change for Surgut­neftegaz drop­ping its de­mand for penal­ties from buy­ers who fail to pay for car­goes.

“We have been ar­gu­ing that if sanc­tions make it im­pos­si­ble to pay for an oil cargo, how on earth are we sup­posed to pay penal­ties,” one trad­ing source said.

“So we have agreed that the pay­ment re­mains sus­pended for the en­tire du­ra­tion of sanc­tions — just like it works with Iran,” he added.

Ros­neft head­quar­ters is seen be­hind the Krem­lin wall, in cen­tral Moscow. Rus­sian en­ergy ma­jors are putting pressure on Western oil buy­ers to use eu­ros in­stead of dol­lars for pay­ments and in­tro­duc­ing penalty clauses in con­tracts as Moscow seeks pro­tec­tion against pos­si­ble new US sanc­tions.

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