Russian petroleum producer Surgutneftegaz is delivering oil to Chinese importers without requiring letters of credit, three people with knowledge of the matter said.
This lets Surgutneftegaz continue to sell crude from the port of Kozmino in Russia’s Far East to China, the world’s top oil importer. These exports of some 754,000 barrels per day are China’s biggest source of spot crude oil.
The move allows Surgutneftegaz to get around a problem created by US sanctions in response to Russia’s invasion of Ukraine: Banks stopped issuing letters of credit for Russian oil. Beijing has repeatedly voiced opposition to the sanctions, calling them ineffective and insisting China will maintain normal economic and trade relations with Russia.
To get round the restrictions, Chinese companies are using open accounts that allow the customer to buy goods on a deferred payment basis, with a requirement to pay in full up to three days after the cargo is loaded, the sources said. They could not be named because of the sensitivity of the matter.
It was not immediately clear which banks were involved.
A letter of credit, which allows 30 days for payment and is backed by a bank, is the standard for global trade as it offers the strongest guarantee for both sides.
But, the parties were forced to find a solution for cargoes that were already traded and due for loading in March and April, the sources said without giving quantities.
One of the sources said payment in US dollars was still possible during a grace period until June for the implementation of US sanctions on Russia’s access to the SWIFT international payment system.
- Reuters, with editing by Neal McGrath