The global oil market was tossed into turmoil after Russia attacked Ukraine. Top oil buyers struggle to secure guarantees at Western banks to find ships to take crude oil from one of the world’s leading producers.
Three significant buyers of Russian oil have been denied permission to open letters of credit from western banks to cover purchases. The situation has been showcased due to market uncertainty after the Russian invasion.
Top Russian oil buyers include Western oil giants such as Shell and BP, ENI, Total Energies, Exxon Mobil, Equinor, Chevron, and trading houses such as Vitol, Glencore, and Trafigura Gunvor and Mercuria. Letters of credit from the bank of buyer is a conventional practice in goods trading and assures the seller’s bank that payment will be made complete and on time.
The oil market is already suffering from strict supplies due to years of low investment and soaring demand as pandemic-linked restrictions ease worldwide.
The west has pledged tough sanctions against Russia for the invasion, potentially including cutting Russia off the SWIFT financial transaction system. But this would also have severe implications for the western economy as it could disrupt exports of much-needed commodities amid galloping inflation.
In other news Russia fired on two Foreign Ships close to the Black sea port- Ukraine’s Ministry
Although it is obscure as to what extent the lack of LCs could disrupt Russian exports, some traders say it would take at least several days for companies and banks to figure out the new legal environment.
Meanwhile, shipping rates to load at Russian ports and discharge in northern Europe have tripled in one day to world-scale 300, or about $2.3 million per ship, from world-scale 100, as many ship owners now refuse to call at Russian ports.