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Rosneft business with European companies to remain intact amid US sanctions

The energy giant can avoid the risk of isolation and then continue import crude oil from Venezuela, says Russian Energy Security Fund, although troubles can arise in India

Partnership of the Russian oil giant Rosneft with European companies will remain unharmed by the recent US sanctions against its trading affiliate Rosneft Trading SA (RTSA), but the company’s assets in India may see problems and require alternatives to Venezuelan oil, Konstantin Simonov, Director General of Russia’s National Energy Security Fund (NESF), told Ship2Shore in an exclusive interview. 

On February 18, Washington imposed sanctions on the Geneva-based affiliate over its operations with Venezuelan oil; most of the crude RTSA purchases from Venezuela have been sold to refiners in China and India. As for the Russian oil, RTSA has been selling it to such oil majors as BP, Royal Dutch Shell, ExxonMobil, as well as Glencore, Vitol and Trafigura trading houses. Washington gave its allies 90 days to cut ties with Rosneft Trading. 

“If we take oil trading in Europe which has been performed through Rosneft Trading structure, in fact, Rosneft will not have major financial losses here. In this regard, sanctions are quite considerate, and they give Rosneft as many as 90 days to redirect its export flows from this trading unit to other structures. 

For example, sanctions against the Nord Stream-2 were much tougher, since they actually came into force from the moment of their announcement and, as you know, the Swiss shipping company Allseas [main contractor, ed.] suspended its work on the same day and escaped from the project. Here, so far, none of the Rosneft's European clients has refused from their obligations” Simonov said. 

Reacting to the US announcement on the same day, Rosneft accused Washington of lawlessness and double standards saying it allows US companies (Chevron in particular) to work in Venezuela. The Russian company added it was considering ways of legal protection. 

“Indeed, Rosneft has been very proud of having an independent trading unit, Rosneft Trading, based in Switzerland. Now, apparently, they will have to return to its good old schemes with other intermediaries. Rosneft, by the way, has enough of them: Trafigura is a very large partner, Vitol, Glencore, which was also an important part of the story with the repurchase of Rosneft shares. Rosneft has large trading partners, which are actually not just traders for them, but also financial partners - Glencore participated in re-selling of shares, Trafigura is a co-investor in Indian assets with Rosneft - and that is why redirecting flows through these structures in three months will not be a big problem. Financially Rosneft will not suffer here” added Simonov who noted that most likely Rosneft will have to put aside the idea of having an independent trading unit for the time being and will opt for direct contracts for the same oil volumes with Vitol, Trafigura and others. Selling of oil extracted in Russia will not at all be harmed, since Rosneft itself is not sanctioned, unlike RTSA. Problems are going to touch only the selling of oil extracted in Venezuela. 

“The main problem for Rosneft lies in the reason for these sanctions. Rosneft Trading has been trading both the Russian oil and the Venezuelan oil. Most problems will be related to Venezuelan oil; here Rosneft will face considerable difficulties since Venezuela for Rosneft is not just part of Rosneft Trading operations, but it’s an important direction of Rosneft’s strategy. Therefore, Trump’s actions now come as a challenge for the general strategy of Rosneft in Venezuela” NESF head pinpointed, also noting that the exact size of Rosneft’s investments in Venezuela is unclear. In March 2019, Reuters reported that Rosneft had poured around 9 billion US dollars into Venezuelan projects since 2010, according to its calculations. However this information was not confirmed by the company itself. 

“In any case, it’s several billion US dollars, a significant sum. The trouble is that Rosneft bought for a high price a refiner in India, Essar Oil [now Nayara Energy Limited, ed.], which was adjusted specifically to refine Venezuelan oil [heavy crude, ed.]. It was a strategic line: extracting oil in Venezuela and refining it in India, and now this whole chain is questioned. 

By the way, about 60% of Rosneft Trading's exports have been Venezuelan oil that was going to India to the assets of Rosneft there. The rest was going almost entirely to China” continued the Head of the Russian National Energy Security Fund explaining that at least 15 billion US dollars, made up of Rosneft’s investments in Venezuela and assets in India, might be in limbo in the wake of the US sanctions. 

“Their business in India [Nayara Energy Limited refinery, ed] will start standing idle, so Rosneft urgently needs to find alternatives to let it work. The point is that the refiner was designed for heavy Venezuelan crude, so they will have to find some poor-quality, sour crude as an alternative, and that might not be easy. Such oil might be of scarce supply” Simonov clarified. 

Belgian executive Didier Casimiro, president of Rosneft Trading SA, who was placed in the US sanctions list, was also a non-executive director of Nayara Energy Ltd and on February 21, he resigned from the board of the Indian refiner. 

Russia sees the US sanctions on Rosneft’s affiliate as a manifestation of unfair competition that will only damage relations between Russia and the United States, Foreign Ministry's spokeswoman Maria Zakharova said the next day after the announcement; she claimed that the sanctions had not and would not influence Russia's international policy, including cooperation with Venezuela, Syria, Iran or other countries on which similar unilateral restrictions might be imposed. 

“There are two options [for Rosneft strategy in Venezuela, ed.]. First is a strong-headed continuation of its strategy. In this case, Rosneft will have to look for covert schemes to import this oil, but it will be an illegal trade from the point of view of the US sanctions. So, it will be a real battle. US military vessels may start to stop these tankers and Rosneft must be prepared to reply and to act further in case it chooses this hardline policy” Simonov remarked. 

“The second option is exactly the opposite. It is to recognize that the current Venezuelan regime will not last forever and to start negotiations with the United States. It is clear that if the Maduro government collapses, Rosneft’s investments - about 6-7 billion US dollars, huge money - will be put in question. Will the new government recognize Venezuelan obligations to investors? I really doubt it. Bowing to Washington would be a serious test for Rosneft, which it is very unlikely to take” he concluded. Venezuelan PDVSA has already shifted several oil cargoes from Rosneft Trading SA to another affiliate of Rosneft, TNK Trading, according to Reuters citing PDVSA’s trade reports as of February 24., 06/03/20 17:08

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