LONDON/MOSCOW, March 13 (Reuters) - Azeri oil firm Socar has redeemed a $1.3 billion syndicated loan led by U.S. banks Citi and JP Morgan two years ahead of schedule, around the time the Azeri firm received a loan of a similar amount from Russian oil firm Lukoil, according to three banking and trading sources familiar with the matter.

Citi, JP Morgan and Socar declined to comment on the early redemption of the U.S. bank-led loan. Lukoil and Socar have declined to respond to requests for comment on the Lukoil loan, which was previously reported by Reuters.

The sources said there was no suggestion that either transaction violated U.S. or other financial sanctions against companies doing business with Russia.

Nevertheless, the sources said the early redemption had the effect of allowing Moscow to resume sales of crude to Socar's Star refinery in Turkey, a major longstanding buyer, at a time when other refiners worldwide were shunning Russian oil.

Around the time of the transactions, Socar resumed purchases of Russian oil at Star, which it had halted last year. The sources said the halt had been at the request of the U.S. banking consortium, which feared falling foul of sanctions following Russia's invasion of Ukraine.

"Star was designed to process Russian oil, so when Western banks told it to stop Russian oil refining it became a problem," said one of the three sources, who asked not to be identified as he is not allowed to speak to media.

"No loan, no problem," the source said, explaining the logic of the early redemption of the loan from U.S. banks.

The Citi- and JPMorgan-led syndicate had loaned the money to Socar's Turkish unit in 2021 for five years, according to a Socar Turkey statement at the time.

The redemption happened at the end of last year, around the time Lukoil loaned Socar $1.5 billion as part of a deal to resume supplies to Star via Lukoil's trading unit Litasco, the sources said.

Sanctions expert Viktor Winkler, a former head of sanctions compliance at Germany's Commerzbank AG, told Reuters that the early redemption of the loan to Socar, at a time when Socar was also receiving Russian funds, should have triggered scrutiny by the U.S. banks.

"Here you have Azerbaijan and Turkey, which deal a lot with Russia, and oil, the most complex industry in terms of sanctions navigation. Hence potential hidden risks look very big here, and it would be good to know what safeguards and due diligence was done by the banks," said Winkler, who was not involved in the transactions but was asked to comment on them by Reuters.

"You have to first check whether U.S. and EU sanctions prohibit what you do and whether these prohibitions are applicable, second how high your sanctions risks is even without a direct prohibition, and third whether your own internal restrictions stand in the way."

The Star refinery was built in 2018 and can process 200,000 barrels per day, making it one of the largest refineries built in Europe in recent years.

Under pressure from Western banks, Star cut and then suspended Russian oil purchases in mid 2023. It resumed the imports in October, around the time of the loan deal with Lukoil.

Turkey has become one of the biggest Russian oil buyers since international sanctions were imposed in 2022 and Europe mostly stopped buying. India and China have also become big Russian oil importers.

A U.S. threat to hit financial firms doing business with Russia with sanctions has chilled Turkish-Russian trade in recent months, disrupting or slowing some payments.

Ankara opposes sanctions on Moscow, despite criticising Russia's invasion of Ukraine two years ago. It has managed to maintain close ties with both Moscow and Kyiv throughout the conflict.

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https://www.reuters.com/markets/commodities/azeri-oil-firm-which-took-russian-funds-redeems-us-bank-loans-early-sources-say-2024-03-13/