Sanctions and restrictions generated by the war in Ukraine create new bonding needs

A changing situation since February 2022

With the European Union having imposed major sanctions against Russia in response to the war waged against Ukraine since February 2022, a new distribution of energy supplies is taking shape.

Since June 2022, the European Council has prohibited the purchase, import or transfer of crude oil transported by sea and certain refined products from Russia to the European Union. These restrictions have been in place and have been gradually applied since December 2022 for crude oil and since February 2023 for other refined petroleum products. These sanctions are having major repercussions, including the creation of new international trade flows to make up for supplies that previously came from Russia.

New requirements for high value bonds

Some European oil traders and distributors have had to turn to new suppliers and intermediaries, with whom they had little or no commercial relationship.

These energy suppliers ask for On Demand Payment Bonds which to protect the supplier in the event of non-payment of invoices. These bonds (or sureties) are arranged by the buyer and provided to the supplier.

As a broker specialising in customer credit, we have been called upon in recent months to find solutions for these payment bonds with our close contacts in the surety market.

Complex arrangements where the broker advises and centralises exchanges

The amount of cover required is often substantial, and as a broker we canvass the entire market and compare the best solutions and pricing. We also make sure that the rating of the surety company is satisfactory for the beneficiary.

Some bond providers may wish to share (syndicate) the risk, in which case we obtain additional capacity with other surety companies or banks.

Finally, we assist the legal departments of both beneficiary and provider in agreeing a bond wording which is acceptable to both parties as well as the surety company.

Through all these stages, AU Group’s specialists arrange these bonds in the most efficient and cost effective manner.