The rapid shutdown of Russian banking around the world and the exclusion of Russia from the Swift electronic payment system in the international response to the Russian invasion of Ukraine, has severely curtailed letter of credit (L/C) business in several areas.

While there has been much focus on the lack of L/Cs for purchases of Russian oil and gas, the ban on Swift has significantly affected many businesses, including traders in other commodities and Russian importers. At least one major Russian oil producer meanwhile is reportedly finding ways to bypass the Swift ban by allowing L/C alternatives.

Impact broadens

Calls for a total ban on imports of Russian oil and gas, from which the country derived about one-third of its income last year, have been led by Ukraine but only fully heeded so far by the US with the UK saying it will wind down imports during the year. Other countries are under pressure to follow suit (DC World News, 11 March 2022).

Moscow's reliance on oil and gas means the energy industry has been the focus of world attention during the crisis, but many other commodities and traders have been affected.

Pulling out

Trading in nickel remains frozen on the London Metal Exchange after it put a stop to nickel trades on 8 March for what it described as disorderly market activity. Global giants including Disney, Apple and British American Tobacco meanwhile have joined Shell and BP in saying the will back out of Russia, at least temporarily.

There are exceptions. Trafigura, Vitol and Glencore loaded cargoes of oil products in Russian ports last week. Subway, whose Russian restaurants are owned by local franchisees is one of the last global brands remaining active in the country.

Russian imports

Imports from Russia have been affected by the Swift ban to according to a professor of finance and business economics at University of Southern California's Marshall School of Business.

"Without access to Swift, a Russian importer of American computers can no longer pay the American exporter. Likewise, a Russian importer of French wine can no longer obtain a letter of credit from a Russian bank to provide his French supplier to guarantee the delivery of the wine," says Rodney Ramcharan.

L/C alternatives

Russian oil producer Surgutneftegaz meanwhile is reportedly striking deals with Chinese customers that obviate the need for L/Cs from banks. It has allowed Chinese buyers to receive oil on an open account basis so long as they pay in full up to three days after the cargo is loaded according to the Reuters news agency.

Surgutneftegaz has repeatedly failed to find buyers in its usual tendering processes since the Ukraine crisis began and may yet seek L/C alternative arrangements with more buyers.

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