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U.S. sanctions on Rosneft Trading SA threaten Venezuela’s ability to export oil. but pose only a limited threat to the Russian energy giant’s wider business.
The Geneva-based trading arm of Rosneft PJSC. was targeted by the U.S. for helping to sell the commodity that bankrolls the regime of President Nicolas Maduro. The move could have a significant effect on the flow of Venezuelan crude to China and India. where the Russian energy giant has a stake in a refinery. Yet there were no signs yet that oil supplies to Europe will be hit.
For Rosneft as a whole there shouldn’t be too much interruption. said Brian O’Toole. a senior fellow at the Atlantic Council and who previously worked in the Treasury Department’s sanctions unit. However. the company’s Swiss unit appears to be largely kaput. he said.
Rosneft denounced the sanctions. saying its operations in Venezuela don’t violate any international laws. The Kremlin said the pressure on Russia’s largest oil company won’t change the country’s relationship with Venezuela.
Able to Adapt
The sanctions imposed on Rosneft Trading are the toughest in the U.S. Treasury’s arsenal. making it effectively untouchable to international companies. including shipowners. insurers and banks. That creates a headache for its Russian parent. but not an insurmountable problem.
Rosneft shouldn’t face any significant negative financial effects. said Salih Yilmaz. a global energy analyst at Bloomberg Intelligence. The company should be able to adapt by creating a new trading unit before the May 20 deadline when the sanctions kick in. he said.
Rosneft Trading accounted for about half of Venezuela’s 874.649 barrels a day of exports in January. according to shipping reports and tracking data compiled by Bloomberg. The potential loss of Venezuelan cargoes because of the sanctions helped push oil prices higher on Wednesday. Brent crude. the international benchmark. rose as much as 1.5% to $58.61 a barrel.
Every layer of cost. of difficulty that this adds. means less cash flow for PDVSA. said Francisco Monaldi. a lecturer in energy economics at Rice University’s Baker Institute for Public Policy. and an expert on Venezuela’s oil industry. He estimated Rosneft Trading is making more than $1 billion a year on Venezuelan oil. because PDVSA has to sell its oil at a steep discount. By sanctioning a Russian company. I think the clear message is for the Russians to sit at the negotiating table. he said.
International Deals
In recent years. Rosneft’s Swiss unit has also been involved in a variety of other international relationships. It has forged an oil-supply deal with Kurdistan. a liquefied natural gas contract with Egypt and delivered gasoline shipments to Asia. according to the company’s website.
There was no sign that Rosneft’s core business of selling Russian oil on the global market would be affected. Recent company documents offering crude and refined products for sale didn’t mention the Switzerland-based trading arm. the counterparty was the Moscow-based parent.
Rosneft Trading was listed as the counterparty for a contract to supply crude to Germany through the Druzhba pipeline from 2017 to 2018. according to a company disclosure. A spokeswoman for the PCK Schwedt refinery in Germany said the oil it processes is supplied by its owners — Rosneft. Eni SpA and Royal Dutch Shell Plc — but declined to comment further.
Even if Rosneft’s direct legal exposure to the sanctions is limited. such measures by the U.S. can often have a chilling effect on trade as companies grow increasingly wary of counterparty risk.
It is only the Geneva-based company that is targeted. not the mother company. Olivier Jakob. managing director of consultant Petromatrix GmbH said in a note. Still. risk managers and compliance officers will probably make it difficult to trade with any structure that looks too similar in form to Rosneft Trading.
