Russia's deputy prime minister, Alexander Novak, has recognised that difficulties obtaining letters of credit (L/Cs) is hurting Russia's substantial exports of crude oil and derivative products.

A major fall in Russian oil output is expected as a result of bans of Russian oil imports by some countries while the EU, whose member states are Russia's major oil and petrochemical customers, is under increasing pressure to reduce reliance on Russian oil.

L/Cs singled out

"We are currently facing certain problems, primarily related to financing," the deputy prime minister told members of Russia's parliament yesterday.

Specifically, he said that partners and traders were facing "problems in the availability and issuance of L/Cs."

Bans and banks

The US has already imposed a ban on imports of Russian oil while the UK says it intends ending imports by the end of the year.

Notwithstanding these bans, a major issue as Novak recognises is that banks are already self-sanctioning by choosing not to provide L/Cs or other finance for transactions involving Russian oil (DC World News, 4 March 2022).

European reluctance

But it is perhaps a European ban on Russia's oil that would hurt Moscow most. Russia is a major supplier to Europe, which annually consumes about 500 million tonnes of oil, of which 30 per cent or 150 million tonnes is of Russian origin. Europe also buys some 80 million tonnes per annum of petrochemicals from Russia.

The EU has been too slow to react according to some key political figures. "Vladimir Putin is able to finance his war machine thanks to EU payments for Russian gas and oil," the bloc's foreign affairs chief, Josep Borrell, told the European parliament earlier this week.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.