Vietnam-Russia Oil Profits Channel Arms Payments Amid Rising US Sanctions Pressure

Summary:

ietnam and Russia have formalized a confidential mechanism to use oil and gas profits from their joint venture to repay military procurement loans, circumventing Western financial sanctions...

Strategic Context: Navigating Between Giants

Vietnam’s increasingly pivotal role in Southeast Asia has led it to court both Russia and the United States two powers with growing hostility toward one another. While the US has pushed for tighter cooperation with Vietnam under the Indo-Pacific Strategy, Hanoi’s longstanding defense dependence on Russia remains difficult to sever. Despite recent US efforts to deepen strategic relations (including lifting the arms embargo in 2016 and upgrading Vietnam to a “Comprehensive Strategic Partnership” in 2023), the leaked documents show that Hanoi is quietly sustaining its military alliance with Moscow.

This dual alignment reflects Vietnam's hedging strategy: ensuring defense self-reliance amid growing tensions with China while avoiding overdependence on any single major power.

Mechanism Details: Avoiding the SWIFT Network and Sanctions Risk

Vietnam and Russia are using oil profits from their Siberian joint venture, Rusvietpetro, as a shielded conduit to pay off military equipment loans. Here's how it works:

Loan Repayment: Vietnam purchases Russian arms on credit.

Profit Conversion: Profits from Rusvietpetro are used to repay the loans directly in Russia.

Domestic Balancing: Excess profits flow from Vietnam’s Petrovietnam (PVN) to Russia’s Zarubezhneft, which then cycles equivalent funds back to PVN through its Vietnam operations, all within their respective territories and outside SWIFT channels.

The explicit goal is to reduce exposure to US sanctions by avoiding cross-border financial transactions that could trigger regulatory scrutiny.

This “closed-loop” strategy, finalized in 2024 and mentioned in PVN’s internal documents, was explicitly designed to remain “confidential and appropriate,” insulating both parties from Western penalties.

US Sanctions and CAATSA Exposure

The timing of this revelation is critical. The Trump administration currently imposing 20% tariffs on Vietnamese exports has signaled a more aggressive stance toward sanctions enforcement, especially under the Countering America's Adversaries Through Sanctions Act (CAATSA). This legislation empowers the US to penalize any entity engaged in significant defense transactions with sanctioned Russian firms.

While companies like Zarubezhneft have not yet been sanctioned, their leadership (such as CEO Sergei Kudryashov) has already appeared on Western watchlists. This preemptive payment mechanism appears crafted to avoid such future eventualities.

Experts like economist Ben Hilgenstock and defense analyst Evan Laksmana affirm that the method is rare but effective, reflecting Russia’s long-standing reputation for offering flexible terms in arms deals including barter systems and creative financing (e.g., palm oil-for-fighters trade with Indonesia in 2017).

Strategic Payoffs and Regional ImplicationsDespite criticism from internal Vietnamese officials wary of jeopardizing US ties, the mechanism has already shown results:

Russia granted Zarubezhneft a license for Vietnam's Block 11-2 gas field during Putin’s June 2024 visit to Hanoi named in the PVN memo.

A “Strategic Partnership Plan” covering defense cooperation from 2026–2030 was signed in Moscow in May 2025 by General Secretary To Lam.

3D mapping of Block 11-2 began in April 2025, confirming that the agreement is now operational.

These developments underscore that Vietnam is doubling down on its energy-defense ties with Moscow, despite the reputational and diplomatic risks involved.

Diplomatic Dilemma: Testing the West’s Tolerance

Vietnam's balancing act is becoming increasingly precarious. The EU has accelerated sanctions on Russian oil and arms, and US pressure is mounting. Yet, Washington remains hesitant to fully confront Hanoi, given Vietnam’s role in counterbalancing China’s assertiveness in the South China Sea.

The AP’s exposure of this covert financing structure will likely test the Biden administration’s or Trump’s, depending on timing resolve: Will Washington prioritize enforcement of sanctions, or will it overlook this transgression in favor of preserving its strategic foothold in Southeast Asia?

Vietnam, meanwhile, appears to be gambling that its value to both sides will shield it from the harshest consequences. Whether that calculation proves correct will shape not only the region’s geopolitical dynamics but also broader questions around sanctions enforcement and energy-based diplomatic maneuvering in a bifurcated world.

Source: AP

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