Florence Tan

SINGAPORE (Reuters). Several people who have knowledge of the matter claim that Surgutneftegaz in Russia has permitted Chinese buyers to obtain oil without providing any guarantees, known as letters-of credit (LC), in an effort to avoid Western sanctions.

Surgutneftegaz will continue to export ESPO blend crude oil from Kozmino, Russia’s Far East, to China. This is the largest international oil importer.

China is the biggest spot crude source with Russian ESPO crude crude exports at 750,000 barrels per day in April.

Oil prices reached 14-year highs after Russia invaded Ukraine on February 24th. Russia is now the largest exporter combined of oil products and crude oil. [O/R]

As a result of Western sanctions against Russia’s invasion (which Russia calls a “specially military operation”), banks have stopped issuing LCs for oil from Russia.

China repeatedly criticized the sanctions calling them ineffective. However, it insists that they will continue to be used for normal trade and economic relations with Russia.

Chinese companies have opened accounts which allow their customers to make purchases on a deferred basis. Customers are required to pay the full amount within three days. Due to the sensitive nature the matter, the sources could not identify them.

The identities of the banks involved were not immediately known.

Surgut refused to comment.

A letter of credit is considered the best guarantee, as it allows payment for up to 30 days and is supported by a bank.

According to sources, both parties had to agree on a way forward for cargoes already traded that were due for loading between March and April.

According to one source, payment in U.S. Dollars was possible for a grace period of June until the U.S. sanctions against Russia on accessing the SWIFT international payments system were implemented.

Sources claimed that arrangements are also being made with Russian Urals crude buyers.

Surgutneftegaz failed to issue most spot tenders in March-loading Urals since February as possible buyers didn’t bid following the halting of LCs being issued by banks for Russian oil.