Rosneft in stand-off with oil buyers as it seeks sanctions protection

The company wants Western oil buyers to accept new terms which include paying penalties if they fail to buy oil in the event of new sanctions.

MOSCOW — Rosneft wants its Western oil buyers to accept new terms and pay penalties from 2019 if they fail to pay for supplies in the event that new U.S. sanctions on the Russian energy major disrupt its oil sales, according to trading sources and Rosneft’s draft contracts.

The buyers — including some of the world’s biggest oil companies and traders such as BP, Royal Dutch Shell, Total, Vitol and Gunvor — are fiercely opposing the move, according to trading sources.

The stand-off is likely to force Rosneft to soften its demands, the sources said, adding that the development shows the extent to which the state-owned oil giant is concerned about widening U.S. sanctions on Russia.

“It is all very uncertain with the sanctions and Rosneft is clearly worried and is trying to minimize possible risks,” said a trading source with a European major. “We said no, we couldn’t accept this,” he added.

Rosneft did not immediately respond to a Reuters request comment. BP and Gunvor declined Reuters requests for comment. Shell, Total, Vitol did not respond to Reuters inquiries.

Russia has been under U.S. and EU sanctions since 2014 when it invaded Ukraine’s Crimean peninsula. The sanctions have been repeatedly widened to include new companies and sectors, making it tough for Russian oil firms to borrow money abroad, raise new capital or develop Arctic and unconventional deposits.

President Vladimir Putin’s administration has been hoping for a thaw in relations with the United States since President Donald Trump came to power but Washington has imposed new sanctions instead, including on some of Russia’s richest people.

Russian businesses are preparing for a new wave of sanctions expected in the coming days and months. The firms are trying to diversify away from dollar payments and tapping Asia for more of their financing and technology needs.

Rosneft is run by a close ally of Putin, Igor Sechin.

He and his company have been under sectoral sanctions since 2014. Rosneft has so far avoided being put on the Specially Designated Nationals list, which would make it impossible for major Western companies to have dealings with it.

When Washington put Russia’s aluminum giant Rusal on the SDN list earlier this year, the move brought its metals exports to a near standstill and disrupted its access to raw materials from suppliers around the world.

Stand off

A Rosneft tender document seen by Reuters showed the company had asked its oil buyers to accept a new clause in its 2019 annual tender to sell oil products.

“No sanctions … shall terminate or amend any obligations of the parties stated by the contract,” the document said.

It also said that if a buyer walks away from the contract because of sanctions, it must compensate Rosneft with a payment that could either be a fixed amount or a sum calculated on the basis of the contract terms.

Currently Rosneft has relatively mild sanction clauses, which say that none of the parties has an obligation to abide by the contract if sanctions are imposed and no penalty is levied.

Rosneft is the world’s largest listed oil firm with oil and gas output at around 5 million barrels per day. It produces over 4 percent of global oil — on par with Iran — and counts all the global oil majors among its buyers.

The buyers have insisted on sticking with the old clauses, according to five trading sources.

Rosneft has so far said that it could not guarantee to consider buyers’ bids at tenders as valid unless they accept the new terms.

Rosneft will award its annual oil products supply tenders on Dec. 5, according to the tender documents, giving the companies more time to negotiate.