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Russia’s oil firms are demanding penalty clauses and payments in euros instead of U.S. dollars in their annual renegotiation of oil supply contracts with Western crude buyers, as the Russian oil industry is seeking to protect itself from possible new U.S. sanctions on the sector, Reuters reports, citing a number of industry and trading sources.
Buyers, however, are unwilling to yield to the demands.
U.S. lawmakers have been discussing extending sanctions on Russia to energy and oil projects and sovereign debt markets in what Republican Senator Lindsey Graham called a “sanctions bill from hell.”
Just yesterday, the U.S. Department of the Treasury imposed additional sanctions on officials and entities supporting Russia’s occupation of Crimea, designating three individuals and nine entities for profiting from the annexation of Crimea.
None of the targeted companies are oil companies in this round of sanctions, but the Russian oil industry has apparently grown concerned about sanctions coming its way.
According to Reuters’ sources, Gazprom Neft and Surgutneftegaz, Russia’s third- and fourth-largest producers, respectively, are having very tough talks with trading houses and Western oil majors who buy their oil. Looking to protect themselves in the 2019 annual contracts from possible sanctions, the Russian firms have demanded clauses such as penalties to be paid if buyers fail to pay, sanctions or not. For most of the Western buyers, these demands are unacceptable, and talks with Gazprom Neft and Surgutneftegaz have been progressing painfully, according to industry sources who spoke to Reuters. Some have reached compromises—one large European buyer has agreed to pay in euros in exchange for Surgutneftegaz dropping the penalty clause.
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Earlier this week, Reuters reported that Russia’s biggest oil producer Rosneft was also in a deadlock with Western oil buyers over the 2019 contracts. The major buyers are fiercely opposing penalty clauses, trading sources told Reuters.
Commenting on Gazprom Neft and Surgutneftegaz’s impasse with buyers, a source with a big trading house told Reuters:
“They basically said - sanctions don’t matter. Buyers have to find a way to pay, or to return purchased goods, or pay penalties.”
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.