Enhanced Bank Scrutiny in China, UAE, and Turkey Affects Russian Oil Revenue Amid US Sanctions

In recent developments, Russian oil enterprises have encountered significant payment delays for their crude and fuel exports. Financial institutions in China, Turkey, and the United Arab Emirates (UAE) are heightening their vigilance against potential breaches of U.S. sanctions. This heightened scrutiny, informed by the risks of secondary sanctions from the U.S., is impacting the flow of payments back to Moscow, as reported by eight sources with knowledge of the situation.

The implications of these delays are twofold: they not only disrupt the regular inflow of revenue to the Russian government but also align with U.S. objectives to penalize Russia for its actions in Ukraine without hampering the global energy supply chain.

Specifically, banks in the aforementioned countries have recently tightened their sanctions compliance protocols. This has led to slower processing times and, in some cases, outright refusal of transactions connected to Moscow. These financial institutions are now mandating their clients to ensure and declare that their transactions do not benefit any individuals or entities listed under the U.S. SDN (Special Designated Nationals).

This cautious approach has resulted in several accounts linked to Russian trade being suspended by prominent banks in the UAE, such as First Abu Dhabi Bank (FAB) and Dubai Islamic Bank (DIB), according to two of the sources. Meanwhile, banks in Turkey and China, including Mashreq bank, Ziraat and Vakifbank, as well as the ICBC and Bank of China, continue to process these payments but with considerable delays.

The response from these banks on the matter varies, with some choosing not to comment, while others have not replied to inquiries.

The Kremlin has acknowledged these payment challenges, with spokesperson Dmitry Peskov citing the intense pressure from the U.S. and the EU on trade partners like China as a source of “certain problems” for Russia’s trade and economic relations. However, Peskov remains optimistic about overcoming these hurdles to sustain trade growth with China.

The backdrop to these developments is a series of Western sanctions targeting Russia post its Ukraine invasion in February 2022. While trading Russian oil remains legal under these sanctions, provided it’s priced below the $60 per barrel cap, the recent U.S. Treasury’s executive order has reignited concerns over the real threat of secondary sanctions. This order emphasizes compliance with the price cap, putting Russian transactions under scrutiny akin to those involving Iran in certain trade aspects.

Banks dealing with Russia in China, the UAE, and Turkey have consequently bolstered their due diligence processes, requiring additional documentation and enhancing staff training to ensure adherence to the price cap regulations. The comprehensive documentation sought now extends to details on company ownership and personal information of key individuals, aiming to mitigate exposure to the SDN list.

These enhanced scrutiny measures have introduced significant payment delays, with reports ranging from a few weeks to up to two months, affecting the fluidity of transactions even in direct yuan-ruble exchanges.

This scenario presents an insightful case study on the interplay between international sanctions, global banking practices, and the oil trade, offering a glimpse into the complexities businesses face in navigating geopolitically charged financial waters.