Russia tried to sell a giant sling oil. Nobody wanted that.

Russia failed to sell a large batch of oil, a sign that the soon-to-be-imposed sanctions against its state-owned oil giant are destroying the energy industry underlying its shattered economy.

Moscow maintained a high pace of energy exports in the two months following the invasion, which brought revenue, which Kyiv says finances the Kremlin’s war machine. Many US allies left oil and gas shipments from their harshest sanctions against Russia. Importers in India and elsewhere struck to buy cheap Russian barrels at a time of hefty energy prices.

But exports have hit a chin in recent days, as Rosneft ROSN 2.86%

Oil Co. struggled to find buyers for enough oil to fill a fleet of tankers, said traders familiar with the sale. The producer, in which the government owns a large minority stake, had invited companies to bid on the oil last week, according to dealers and a document seen by The Wall Street Journal.

A spokesman for Rosneft had no immediate comment.

The problems with the sale give an early indication that European sanctions against Rosneft, which are due to take effect on 15 May, are beginning to disrupt Russia’s ability to move crude oil from oil fields to overseas buyers.

The sanctions are less severe than a complete ban on Russian imports. Many expect that Europe will eventually adopt a gradual direct ban on bringing in Russian oil – an embargo promoted by the recently re-elected French President Emmanuel Macron, but opposed by Germany and Hungary, among other members.

But sanctions already in place, set by the EU in mid-March, and copied by Switzerland, will ban companies from reselling Rosneft oil outside Europe. This includes sales to the major Asian market, particularly India, which has absorbed some of Russia’s oil demand since Moscow invaded Ukraine.

Traders will still be able to bring Rosneft crude oil and refined products into the EU and Switzerland, which were exempted so as not to exacerbate shortages of diesel and other fuels. But many companies in Europe are quickly finding non-Russian oil sources. The sanctions are also directed at Transneft,

the extensive state pipeline system that carries oil to ports, creating an additional obstacle to the handling of Russian fuel.

If Rosneft continues to struggle to sell, it would represent a further shock to an economy already locked out of much of Western finance and trade. The company says it is Russia’s largest taxpayer and contributes a fifth of its budget revenue. In total, Russia’s oil and gas sales accounted for 45% of the federal budget by 2021, according to the International Energy Agency.

“If they can not sell, they will have to start shutting down,” said Adi Imsirovic, a senior researcher at the Oxford Institute for Energy Studies and former head of oil trading at a subsidiary of Gazprom PJSC.

Russia’s top diplomat said the risk of a world war on nuclear weapons should not be underestimated after the United States offered more military support to Ukraine; Defense officials from more than 40 countries gathered in Germany while shelling continued in Kharkiv. Photo: Felipe Dana / Associated Press

Rosneft, run by longtime Putin ally Igor Sechin, last week invited bids for about 5.1 million tonnes of Ural, or about 38 million barrels, enough to fill 19 large tankers – according to traders and documents. It asked for payment in rubles, an unusual twist, and said the oil would be loaded on tankers in ports in the Baltic Sea and the Black Sea in May and June. Smaller quantities of other crude oil – including Siberian Light, Espo and Sokol – were also on offer.

Reuters previously reported on Rosneft’s inability to sell the oil.

Rosneft focuses on drilling for oil and gas and refining crude oil into usable fuels. It has long outsourced most of the actual sales of the items to a handful of dealers, including Trafigura Group Pte. Ltd., Vitol and Glencore PLC,

which in turn shipped the oil to buyers around the world.

However, dealers are withdrawing from the Russian market before EU sanctions take effect. Vitol, the world’s largest independent oil trader, and which has a three-decade presence in Moscow, expects to stop trading Russian oil before the end of the year, people familiar with the decision said.

Rosneft’s tender was an attempt to export crude oil, which trading companies were no longer willing to handle, said people with knowledge of the sale.

Unlike the United States, Russia does not have much room to store oil, so declining demand quickly backs up the supply chain and causes producers to turn down production. Once wells are turned off, they can be difficult to turn back to their previous capacity.

Production has already fallen since the invasion on February 24, although the scale of the losses is difficult to measure because Moscow limits the release of data on a number of sectors. Rosneft and smaller private producers will face long-term problems as a result of sanctions against the sale of western parts and technology to Russia, analysts said.

As a sign that refineries outside Russia are looking for alternative suppliers, the country’s flagship Ural crude is traded at around $ 35 per barrel. barrel below the price of the international benchmark Brent, said Tamas Varga, analyst at brokerage firm PVM Oil Associates. Before the war, the two kinds of crude oil traded within a few dollars of each other.

Write to Joe Wallace at joe.wallace@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com

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