View of Burj Khalifa, Dubai, United Arab Emirates
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Russian commodity traders are rushing to set up a business in Dubai as Switzerland is making trading with Moscow increasingly difficult.
Switzerland has been the home of intermediaries for decades to help match Russian producers with buyers around the world. Currently, sanctions ratchet-ups are urging migration to the emirates of the Persian Gulf.
Russia’s three largest oil producers are in the process of assessing Dubai’s trading operations, with several other companies already relocating to Dubai. For Switzerland, some sort of escape seems inevitable after the European Union’s ban on exports from Russia.
Wooter Jacobs, director of the Erasmus Commodity Trade Center at Erasmus University in Rotterdam, said: “The Middle East and eastern jurisdictions are more important than the Eurocentric situation of commodity business to date.”
Increasingly restrictive sanctions have made it difficult for Russian state-owned enterprises (including those transporting national goods) to trade. Informal self-sanctions are also an issue. Banks are drawing credit lines that are essential to financing transactions, and shipping and insurance companies are also out of service.
This avoids imposing sanctions on Russian individuals and groups, intensifying the competition that Switzerland is already facing as a global commodity trading center.
Swiss sanctions
Switzerland claims neutrality and does not allow its weapons to be brought into conflict zones, but has followed the EU in imposing increasingly stringent restrictions on some goods, banks and individuals considered close to the Kremlin. .. By the end of 2022, the EU plans to put restrictions on insurance and financing to transport Russian oil to countries outside the block, and Switzerland says it will do the same.
“This is part of the fact that the Federal Council has announced that it will do exactly the same thing,” a spokesman for the Swiss Economic Affairs Office (SECO) said on the phone. “That’s really the same. We have incorporated all European Union ordinances into Swiss law.” If fully enacted, it could make Russia’s dealings with oil more difficult, April. In addition to the Swiss complete ban on Russian coal brokerage, sales and financial services announced in. However, regulations also contribute to some businesses moving to other locations.
“Energy transactions between Russia and China were usually done by the Swiss Commodity House and may have received financial support from London bankers. Who wants to do it now?” Jacobs Said. “Clothes that do so may inevitably move to new jurisdictions.”
Moving company
Executives from Russia’s state-owned oil producer Rosneft PJSC jumped into Dubai last month to explore ideas for a trading venture. Meanwhile, Russia’s third-largest oil producer, Gazprom Neft PJSC, is also trying to expand its presence in the city, people familiar with the matter said.
Litasco SA, the sales and trading division of Russian energy giant Lukoil PJSC, is considering moving some of its trading and operations staff from Geneva to Dubai. there. Lukoil is Russia’s second largest oil producer.
Another Geneva hardliner — Russian grain trader Solaris Commodities opened an office in Dubai last week, saying people familiar with the matter asked not to name it because the information is private. .. Sanctions do not include produce, but Swiss banks are avoiding Russian commodities, which makes it difficult for traders to access financing, whether or not they are penalized.
It also hurt commodity traders’ funding as lenders such as BNP Paribas and ABN AMRO completely reduced or withdrew the sector and Russian banks intervened to finance the business. Zubelbank, which was recently added to the list of sanctioned companies, doubled the volume of its commodities trade finance business in Switzerland last year, with funds flowing primarily into the petroleum chemicals, metals, grains and fertilizer sectors. These flows are currently not possible.
Other Swiss towns are facing departure. Zug, a commodity trading hub due to its very low taxes, became world-famous in the 1980s as a haven for legendary trader Marc Rich from US justice. The product business there is also looking to the Middle East. Based in Zug, Russia’s largest producer of coal exclusive marketer, Suek AG plans to launch a trading business in Dubai.
EuroChem Group AG, one of the world’s largest fertilizer producers with most of its assets in Russia, has also set up a Dubai-based venture. Both were previously owned by billionaire Andrey Melnichenko until the beginning of the Ukrainian War.
Some boutique companies in Dubai that link to some larger trading companies are also investigating Russian transactions, people familiar with the matter said.
Dubai strategy
The United Arab Emirates has attracted wealthy Russians and their money since the invasion of Ukraine. Currently, state-owned enterprises and private commodities companies follow.
The United Arab Emirates has developed its financial infrastructure for this kind of moment. Emirates banks have become the mainstay of commodity trading finance in recent years and have become a regular feature of syndicated revolving credit lines issued by the industry’s largest homes.
Dubai’s numerous free trade areas, proximity to energy producers in the Middle East, and low tax rates are already attractive, even if they still have the foundation to make up for global centers such as Singapore, London, Geneva and Stanford. Has been proven to be. Last year, the Dubai Multicommodity Center hosted an event with the Moscow Chamber of Commerce aimed at attracting Russian companies and establishing them there.
“Dubai has emerged as a true global product hub,” said Najla Al Qassimi, director of global affairs for the Dubai-based B’huth think tank, formerly based in Geneva. “We have the right infrastructure, transportation, and services to support these companies.”
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