Rosneft, Russia’s biggest crude oil producer, may back out of a deal to buy Morgan Stanley’s oil trading unit because Western sanctions make it virtually impossible for the company to finance daily operations, Reuters reported on Thursday, citing sources close to the state-controlled firm.
The US bank’s unit trades actual barrels of oil instead of just contracts linked to the price of crude. Morgan Stanley is under US pressure to sell the unit because regulators regard physical oil trading as too risky for a major bank to own; unpredictable events such as an oil tanker leak could expose it to billions of dollars in liability, according to the news agency.
There were no official comments from Rosneft and Morgan Stanley. In July Morgan Stanley chief financial officer Ruth Porat said she expected the deal to close later this year.
Rosneft agreed to buy the unit in December, but since then, the United States and the European Union have imposed sanctions on Russia’s energy and military sectors to punish Moscow for its incursion into Ukraine.
Rosneft chief Igor Sechin, a close ally of Russian President Vladimir Putin, has been on the US sanctions list since April. Rosneft itself was added to the list in July.
The company has enough cash to buy the Morgan Stanley unit, which sources said could fetch between US$300 million and US$400 million.
But for its daily operations, it needs billions of dollars in bank credit, which has become difficult to secure in the face of the sanctions, the report said.
Another obstacle for the deal is getting approval from the US Committee on Foreign Investment, which vets mergers and acquisitions as they affect US security, the report said.
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