U.S. Sanctions Rosneft Unit for Ties to Venezuelan Oil Trade

Ben Bartenstein, Jack Farchy and Josh Wingrove
U.S. Sanctions Rosneft Unit for Ties to Venezuelan Oil Trade

(Bloomberg) -- The U.S. sanctioned a unit of Russia’s largest oil producer, Rosneft PJSC, for maintaining ties with Venezuela’s Nicolas Maduro and state-run oil company PDVSA.

The Treasury Department’s Office of Foreign Assets Control is acting against Rosneft Trading SA, the company’s Swiss-incorporated brokerage firm, as well as its Chairman Didier Casimiro. The U.S. restrictions come with a three-month wind-down period that expires May 20.

The move represents the latest escalation in the Trump administration’s campaign to oust Maduro and rally international support behind Venezuelan opposition leader Juan Guaido. For the oil market, it means disruption and increased legal costs for companies, though the wind-down period gives operators time to adjust to the new regime.

Oil futures erased a decline, with Brent crude settling 8 cents higher at $57.75 a barrel, after falling as much as $1.37. The ruble and Russian bonds fell. Rosneft share tumbled in Moscow, closing 2.7% lower.

The Russian government said the sanctions won’t affect its international relations with Venezuela or any other country. Rosneft said the sanctions are illegal, that its operations in Venezuela are commercial, not political, and that other international companies, including American ones, operate there.

“By operating in Venezuela, Rosneft is not violating any international or national law,” the company said, adding the U.S. government presented no proof of illegality. The operations are part of contracts signed before the introduction of sanctions and “are aimed at returning previously made investments and the implementation of long-term commercial interests,” it said.

Rosneft is handling over half the oil coming from Venezuela and helping the country evade sanctions, according to U.S. officials who briefed reporters on condition of anonymity. Rosneft recently facilitated a shipment of 2 million barrels of Venezuelan oil to West Africa, one of the officials said.

Rosneft has been evading sanctions by using ship-to-ship transfers to obtain Venezuelan oil, a U.S. official said. In other cases, they’ve changed names on ships to avoid detection, or lied about the source of the oil.

The sanctions affect assets in the U.S. But those engaging in transactions with Rosneft Trading and Casimiro worldwide run the risk of being sanctioned, an official said.

The restrictions are more narrowly targeted than Washington’s 2018 sanctions against metals group United Co. Rusal, which threw global aluminum markets into turmoil. Tuesday’s sanctions don’t prohibit deals with Rosneft Trading’s parent company or its other units, the Treasury said in a Q&A. That assurance, together with the three-month wind-down period, should limit the disruption to the flow of oil from Russia.

Existing U.S. sanctions already prohibit providing financing to Rosneft for longer than 60 days, meaning that traders have for several years been wary of striking longer-term deals with the Russian company.

President Donald Trump personally signed off on the sanctions and Secretary of State Michael Pompeo discussed the matter on Saturday with Russian Foreign Minister Sergei Lavrov, an official said.

In the wake of U.S. sanctions on Venezuela, Russia has become the second-largest source of American oil imports. The nation’s crude and oil product exports to the U.S. climbed to 20.9 million barrels last October, the highest since November 2011, according to U.S. government data.

Rosneft is currently subject to some U.S. market-sector sanctions, although those measures aren’t as far-reaching as the sanctions against businesses associated with the Maduro regime and don’t prevent Rosneft from entering into transactions for Venezuelan oil.

Rosneft Loans

Rosneft has been Venezuela’s main shipper of crude, which goes predominantly to refineries in India and China. The Moscow-based company, controlled by Russian President Vladimir Putin’s government, has loaned $6.5 billion to Petroleos de Venezuela SA, the Latin American country’s state-owned oil company, in exchange for crude.

Venezuelan oil sales fell to a 34-year-low in 2019 after sanctions cut off trade with the U.S., until then the country’s biggest customer.

Notably, the U.S. Treasury Department has exempted Chevron Corp., allowing the company to conduct business with PDVSA. Chevron has ramped up output at a key Venezuelan oil project to levels not seen in almost a year. Its current waiver from sanctions expires in April.

Rosneft Trading has been involved in a variety of international relationships for the Russian producer. It’s been the counterparty for an oil-supply deal with the semi-autonomous Kurdistan region, a liquefied natural gas contract with Egypt and gasoline shipments to Asia, according to the company’s website.The impact on Rosneft’s core business of selling Russian oil on the global market is unclear. Recent company documents offering crude and refined oil products for sale don’t mention the Switzerland-based trading arm. However, Rosneft Trading SA was the counterparty for a contract to supply crude to Germany through the Druzhba pipeline from 2017 to 2018, according to a company disclosure.

(Adds comment from Rosneft in fifth and sixth paragraphs)

--With assistance from Saleha Mohsin, Sayer Devlin, Dina Khrennikova, Olga Tanas, Jack Wittels and Jake Rudnitsky.

To contact the reporters on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net;Jack Farchy in London at jfarchy@bloomberg.net;Josh Wingrove in Washington at jwingrove4@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Carlos Caminada, Steven Frank

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