Russian oil firms are experiencing significant delays in receiving payments for crude and fuel, with banks in China, Turkey, and the United Arab Emirates (UAE) becoming increasingly cautious of U.S. secondary sanctions, according to eight knowledgeable sources.
The payment delays are resulting in reduced revenue for the Kremlin, leading to erratic financial inflows and serving Washington’s dual policy sanction goals: disrupting funds flowing to the Kremlin while maintaining global energy flows uninterrupted.
In recent weeks, several banks in China, the UAE, and Turkey have heightened their sanctions compliance requirements, resulting in payment delays or rejections for money transfers to Moscow, as stated by the eight sources from the banking and trading sectors.
In response to U.S. secondary sanctions concerns, banks have begun requesting written assurances from clients that no individuals or entities listed in the U.S. SDN (Special Designated Nationals) are involved in transactions or benefiting from payments.
Despite requests for anonymity due to the sensitivity of the issue and confidentiality agreements, these sources have disclosed that banks such as First Abu Dhabi Bank (FAB) and Dubai Islamic Bank (DIB) in the UAE have suspended multiple accounts linked to Russian trade activities.
While banks like Mashreq in the UAE, Ziraat and Vakifbank in Turkey, and ICBC and Bank of China in China are still processing payments, there are significant delays of weeks or even months, as reported by four sources.
Commenting on reports of slowed payments by Chinese banks, Kremlin spokesperson Dmitry Peskov acknowledged the challenges, citing pressure from the United States and the European Union on China.
The implementation of various sanctions on Russia by the West following its invasion of Ukraine in February 2022 has significantly disrupted Russian oil exports and payments. Despite normalization of flows to Asia and Africa away from Europe, issues resurfaced in December after banks and companies realized the real threat of U.S. secondary sanctions, particularly after the U.S. Treasury’s executive order in December 2023.
The order warned of potential sanctions for evading the Western-imposed price cap on Russian oil and urged foreign banks to enhance compliance, marking the first direct warning about the possibility of secondary sanctions on Russia.
Following the U.S. order, banks in China, the UAE, and Turkey working with Russia have intensified checks, requested additional documentation, and provided more staff training to ensure compliance with the price cap.
These additional requirements may include comprehensive details on company ownership involved in deals and personal data of individuals controlling these entities, enabling banks to verify any exposure to the SDN list.
By the end of February, UAE banks had to enhance payment scrutiny, as they were required to furnish data to U.S. correspondent banks and the U.S. Treasury regarding transactions going to China on behalf of Russian entities.
Consequently, payment processing to Russia experienced delays, with one source citing a delay of up to two months and another indicating delays ranging from two to three weeks.
The tightened scrutiny has made transactions challenging, even for direct yuan-rouble transactions, with delays stretching to weeks, as revealed by traders.