Russia and Vietnam Develop ‘Shadow’ Weapons Payment Scheme via Oil and Gas Revenues

Russia and Vietnam have developed a ‘shadow’ mechanism to conceal payments for arms supply deals in order to circumvent U.S. and other Western sanctions.

In order to do this, they use profits from joint oil and gas projects as a form of payment for defense contracts, avoiding direct money transfers through the global banking system.

According to the Associated Press, this is detailed in internal Vietnamese documents obtained by journalists.

Under this scheme, Vietnam purchased military equipment from Russia – including fighter jets, tanks, and ships – on credit, with payments made through its share of profits from a joint oil venture in Siberia. These types of transactions are highly unusual for global financial markets and, according to the documents, ensure the continued flow of funds even if sanctions against Moscow are tightened due to the war in Ukraine.

Despite the leaks about this scheme as early as 2023, Russia and Vietnam have not abandoned it. On the contrary, they have formally cemented and expanded the arrangement to finance future arms purchases.

How the Mechanism Works

The essence of the scheme lies in using the profits of the Vietnamese company Rusvietpetro (a joint venture with Russia in Siberia):

Vietnam’s profits are directed to repay loans for military purchases;
Surplus funds are transferred to the Russian state company Zarubezhneft;

In Vietnam, Zarubezhneft, through its joint venture, transfers equivalent amounts to Petrovietnam, bypassing international transfers via SWIFT.

In a document from Petrovietnam dated June 11th, 2024, it is stated that the scheme is ‘sufficiently confidential and secure,’ as the money circulates only between Vietnam and Russia, without the risk of being blocked by the U.S.

Although Zarubezhneft is not formally under sanctions, its leadership is subject to restrictions. For example, CEO Sergey Kudryashov was added to the U.S. sanctions list in January 2024, and the chairman of the board, Evgeny Murov, has been on the list since 2014 when he headed the Russian Federal Protective Service.

Any assets of these individuals in the U.S. are blocked, and American citizens are prohibited from having direct economic ties with them.

Geopolitical Context

Vietnam has one of the most powerful armies in Southeast Asia and is actively building up its naval and air capabilities, primarily to counter potential threats from China.

The U.S. remains Vietnam’s main trading partner and, following the lifting of the embargo in 2016, supplies defense products. Recently, it was reported that Vietnam had agreed to purchase at least 24 F-16 fighter jets.

Meanwhile, longstanding military ties with Russia have created Hanoi’s dependence on Moscow for spare parts and components.

In 2011, Russia granted Vietnam a $2 billion loan for the purchase of two frigates and 64 T-90S tanks. In 2023, the two sides signed a defense contract worth $8 billion for the delivery of Su-30 fighter jets and two more frigates, but Vietnam has yet to receive any of the equipment.

During Vladimir Putin’s visit to Hanoi in June 2024, Zarubezhneft was granted a license to develop the ‘Block 11-2’ gas field on the Vietnamese shelf.

Analysts confirm the authenticity of the documents and note that this scheme demonstrates Moscow’s traditional flexibility in military agreements in Southeast Asia. At the same time, it poses risks for Vietnam, as excessive closeness with Russia could provoke a negative response from Washington and European capitals.