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US taps big trading houses to help move price-capped Russian oil

The US has privately urged some of the world’s largest commodity traders to shed concerns over shipping price-capped Russian oil, in a bid to keep supplies stable and regain some oversight of Moscow’s exports.

US Department of Treasury officials met executives and traders at Trafigura and Gunvor among others, according to five people familiar with the talks, and offered reassurances over expanding their role in Russian crude and fuels trade without breaching western restrictions.

While Washington has never opposed trading of Russian oil within G7-agreed price curbs, the largest independent oil traders had been wary of the market. “We’ve been actively encouraged by the Americans . . . to re-engage on moving the oil,” said one trader who spoke with the Treasury.

The US reassurances, delivered in meetings with leading independent oil traders in recent weeks, come as Russia has threatened to cut oil supplies this month after western powers ratcheted up support for Ukraine.

The Biden administration led the G7 push for a price cap to squeeze Vladimir Putin’s energy revenues. But it also sought to keep Russian oil flowing to international markets, fearing fallout from a collapse in supplies from one of the world’s top energy exporters.

“It’s up to individual companies to make their own decisions. Our goal is to communicate what is allowed under the price cap architecture,” said one Biden administration official, adding that the discussions focused on the structure of the market.

Global traders including Trafigura, Vitol and Gunvor have all wound down most or all of their Russian business since the full-scale invasion of Ukraine. The groups feared a public backlash or loss of support from banks they rely on to finance the millions of barrels they ship globally each day.

But that has left Russia increasingly reliant on smaller trading houses to move its oil to new markets in Asia. There are mounting concerns about the safety of older tankers being used, without western insurance or shipping services, in an increasingly opaque trade.

The Biden administration’s talks with western traders about shipping more Russian oil illustrates the delicate tightrope for the White House and G7 as they attempt to slash the Kremlin’s oil revenue without disrupting the market.

“One of the goals of the price cap is to ensure oil stays on the market, albeit at a lower price to deprive the Kremlin of revenue,” said a second US administration official. “We are encouraged that oil markets have indeed remained stable over the past few months, despite Russian revenue being down 60 per cent since the invasion.”

Some of the conversations between Treasury officials and traders occurred during the CERAWeek energy conference in Houston this week. Elizabeth Rosenberg, assistant secretary for terrorist financing and financial crimes, was among the team of Treasury officials in Houston.

In December, the G7 introduced a price cap on Russian oil of $60 a barrel, which applied to traders using western services such as maritime insurance when shipping Moscow’s barrels.

Most G7 countries and the EU have also banned the import of seaborne cargoes of Russian oil. But sales to other countries remain permitted. India, China and Turkey have all increased imports of Russian oil in recent months.

While traders of Russian oil under the G7 regime are required to provide attestations proving that the barrels had been bought at the price cap or lower, traders said enforcement by the US was relatively lax.

“The Americans really do want it to move,” said one trader, referring to Russia’s oil.

But western commodity traders and lending banks, which provide billions of dollars in credit lines and other financing, are hesitant because of the reputational risks of helping to fund Putin’s war machine.

“The banks are a major sticking point,” said one trading house adviser. “The traders know the rules allow them to trade Russian oil under the right circumstances, but is it really that attractive with all the potential risks?”

Trading houses such as Vitol, Glencore and Trafigura once all competed for the right to export Russia’s barrels, aggressively courting Putin ally Igor Sechin, the head of Russia’s state oil champion Rosneft, and even the Russian president himself.

Many of the big commodity traders have found themselves in the crosshairs of the US justice department in the recent past, facing fines and investigations for alleged bribery and other corrupt practices in developing countries.

The US State Department in 2014 alleged Putin may have “access to Gunvor funds” as it sanctioned co-founder Gennady Timchenko, a close associate of the Russian president. Gunvor has fiercely denied the allegation and has spent much of the past decade since Timchenko left the company diversifying its business away from Russian oil.

Additional reporting by Tom Wilson in London

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