RUSSIA SANCTIONS: STOP BNP PARIBAS
French banking giant BNP Paribas SA has stopped offering letters of credit to finance commodities trades involving sanctioned Russian banks, according to people familiar with the matter—the latest fallout from tightening economic restrictions imposed by the West against Moscow.
The U.S. and Europe have slapped a series of sanctions on Russian individuals and companies in a bid to put pressure on President Vladimir Putin over his stance on Ukraine. The sanctions haven't been aimed at limiting trade flows, but instead isolating close Putin allies and making it harder for some of Russia's big, state-backed companies to raise funds.
Sanctions specifically target OAO Rosneft, the Russia-owned oil giant, and five Russian state banks, among others. Amid those measures, Western banks and other lenders have had to carefully vet financing deals for any possibility that they might violate the complex sanctions. One area where banks have been more cautious is financing deals involving the purchase of Russian oil, according to market participants.
"The banks are asking a lot of questions when financing anything," said Victoria Atwood Scott, head of compliance at Swiss commodities trader Mercuria Energy Group. "That really does slow up the system," she said.
BNP Paribas stopped offering letters of credit for commodities trades that involve the five sanctioned Russian state banks, even though current sanctions don't specifically rule them out, according to one of the people familiar with the matter. The five Russian banks are big players in the financing of Russian commodities dealings.
While sanctions ban Western banks from raising finances for, or lending to, the five banks, they don't forbid letters of credit—essentially a guarantee of payment for a future delivery. The instruments are key in facilitating commodities trading.
A spokeswoman for BNP Paribas declined to comment. The French bank was hit with a fine of almost $9 billion earlier this year after pleading guilty to violating U.S. sanctions against Sudan, Iran and other countries.
The new caution has worried traders in Asia, in particular, where Russian crude is a big source of supply. Russian oil is often bought as much as two months in advance by Asian refiners to allow time for transportation.
"A lot can change sanctions-wise in two months, and there is not a big prompt market in Asia that refiners could replace Russian grades with, if they suddenly find new legal restrictions mean they can't buy Russian oil," one Singapore-based trader said.
The government-funded Japan Oil, Gas and Metals National Corp. said this week that some Japanese oil buyers didn't participate in a July tender by Rosneft of its Eastern Siberian Pacific Ocean, or ESPO, oil grade because some banks declined to issue letters of credit.
Japanese refiners, known to be among the most conservative buyers in the industry, also didn't participate in an August ESPO tender by Rosneft, market participants said. Japan's imports of ESPO crude in August dropped 33% from July to just over 129,000 barrels a day, government data show.
Some of that summer hesitancy may be abating. Traders said trade financing for Russian oil is now more available in Japan. Necessity and economics are also winning out.
Russian crude is key to meeting winter demand for heating fuels in North Asia. Some Asian buyers are even using the sanctions to negotiate better prices from Russian sellers, one Singapore-based executive said. Asian customers raised their purchases of Russian oil in September.
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