FSUOGM: Russian oil becomes toxic waste

In the midst of the 1998 financial crisis Adam Elstein, the managing director of Bankers Trust’s Moscow office, famously told the Financial Times’ John Thornhill that he would rather “eat toxic nuclear waste” than buy Russian assets. Following President Vladimir Putin’s attack on Ukraine on February 24, Russia is back in that place.

Some oil traders are doing everything they can to avoid doing business with Russia, even though Russian oil exports have largely not been sanctioned yet. Even those traders willing to buy Russian oil are having problems, as banks are very reluctant to issue letters of credit (l/cs) or transfer money to Russia, even to unsanctioned banks.  

So far, only the US has slapped a ban on imports of Russian oil but Christof Ruehl, Senior Research Scholar, Columbia University and the former chief economist at BP, told bne IntelliNews, NewsBase's sister publication, in a recent webcast that the ban will have little real impact on Russia’s oil business and is largely a gesture, as Russia's exports to the US account for less than 2% of its business and the oil is easily rerouted to other markets.

Nevertheless, the threat of sanctions, difficulties with shipping and payment arrangements, and in some cases the fear of drawing public criticism, has meant many traders are shunning Russian oil if they can. This has led to the discount of Russia's flagship Urals blend to the benchmark Brent price blowing up more than ten-fold. Urals has always traded at a small discount to Brent because of its higher sulphur content, but whereas pre-war this discount was $2 per barrel, it now stands at close to $30.

If you’d like to read more about the key events shaping the former Soviet Union’s oil and gas sector then please click here for NewsBase’s FSU Monitor.