Rosneft CEO Sanctions Seen Having No Impact on Oil Trade
New U.S. sanctions against the head of OAO Rosneft (ROSN) won’t stem the flow of oil to the West as commodity traders can still do business with Russia’s largest energy company, lawyers and trading house executives said.
The U.S. today imposed sanctions against Igor Sechin, a confidant of Russian president Vladimir Putin and the chief executive officer of Rosneft, one of the world’s biggest publicly traded oil producers. The new round of sanctions were imposed in response to the escalating crisis in Ukraine.
Commodity traders including Glencore Xstrata Plc (GLEN), Vitol Group and Trafigura Beheer BV, who collectively signed oil supply deals last year with Rosneft with a total value of $11.5 will still be able to do business with the oil giant because the state-controlled company itself wasn’t sanctioned and Sechin doesn’t own a majority stake in the firm.
“As a legal matter, I don’t see any need to restrain trading at all,” Matthew Parish, a partner with the law firm Holman Fenwick Willan LLP in Geneva, said by phone.
Trafigura, the world’s third-largest independent oil trader, whose executive chairman Claude Dauphin signed a $1.5 billion 5-year offtake agreement with Sechin at the St. Petersburg International Economic Forum in June said it doesn’t expect the sanctions to stop it trading Rosneft’s oil.
“We are monitoring the situation but do not believe this move has any impact on our existing business with Rosneft,” Victoria Dix, a Trafigura spokeswoman said by e-mail.
Vitol, the world’s largest independent oil trader, also expects to continue trading Rosneft’s oil, according to executives at the Rotterdam-based firm.
“We deal with a company, we don’t deal with a person,” Vitol CEO Ian Taylor said in an interview April 1, when asked about possible sanctions against the Rosneft CEO.
While the shale boom in the U.S. has made the country less dependent on foreign energy sources, Europe still depends on Russian oil and gas for about 30 percent of its energy needs.
“You can only look back at history and the cold war and everything else where oil and gas continued to flow,” Vitol’s Taylor said.
“Vitol is in compliance with all international sanctions,” Andrea Schlaepfer, a Vitol spokeswoman in London said by phone.
In addition to Sechin, the U.S. today placed new sanctions against six other individuals and 17 entities including two more companies controlled by Gennady Timchenko, the Russian co-founder of commodity trader Gunvor Group Ltd.
Timchenko sold his entire stake in Gunvor to his Swedish partner Torbjorn Tornqvist on March 19, the day before he was sanctioned by the U.S. The Treasury Department today added Timchenko’s investment company Volga Group and his oil transportation company Transoil LLC to the list of sanctioned entities.
“The new sanctions don’t impact Gunvor whatsoever,” Seth Pietras, a Gunvor spokesman said by telephone from Singapore.
Once a major buyer of Rosneft’s crude production, Gunvor no longer buys oil from Rosneft tenders, Gunvor’s CEO Tornqvist said in an interview March 22.
A Glencore spokesman declined to comment.
Parish, the Geneva-based lawyer, said commodity traders continuing to do business with Rosneft and other Russian companies could face reputational risks. He said some banks may be cautious providing financing for deals involving Rosneft oil, but he expects trades will still get completed.
“They are going to keep trading because the reality is these massive Russian energy companies are responsible for a very large portion of their income and business,” said Parish. ’’They are not going to force themselves to take a hit and damage business relationships unless they absolutely have to.’’
To contact the reporter on this story: Andy Hoffman in Geneva at email@example.com