The encyclopedia · Trading & Investing · Financial decision · 2014–2017
Russia's Transneft lost $2B on FX options — then sued Sberbank to get the money back
The world's largest oil pipeline company lost $2B on currency derivatives during the 2014 ruble crisis. It sued its own bank — and won a landmark case.
Transneft · 2014
What happened
Transneft is a Russian state-controlled oil pipeline company, the world's largest, operating over 70,000 km of trunk pipelines and transporting about 80% of oil produced in Russia.
During the 2014 ruble devaluation, Transneft suffered massive losses from foreign exchange derivatives trading. The losses amounted to approximately 75.3 billion rubles ($2.01 billion) in 2014 alone, caused by FX options that went wrong when the ruble collapsed.
Transneft sued Sberbank, the counterparty to the derivatives trades, seeking to invalidate the FX option contracts. In June 2017, the Arbitrazh Court of Moscow ruled in Transneft's favor, ordering Sberbank to pay 67 billion rubles ($1.12 billion) in compensation. The Central Bank of Russia criticized the ruling, warning it could damage the local derivatives market.
The case became a landmark in Russian derivatives law, with international law firm Clifford Chance publishing analysis of the judgment. UCP Foundation, a Transneft shareholder, had previously demanded documents about the company's financial market operations.
Why it happened
- Transneft entered FX option contracts that did not hedge any underlying exposure — its revenue and costs are both in rubles, so it had no need for currency derivatives.
- The 2014 ruble devaluation (the ruble lost ~50% against the dollar) triggered massive losses on FX options that were speculative rather than hedging positions.
- The company's state-owned status may have encouraged a belief that it could not lose — or that it could reverse losses through litigation.
The lesson
A state-owned company with no currency exposure does not need FX derivatives. Speculating with state assets is a bet taxpayers did not authorize.
Sources
- Wikipedia — Transneft
- Risk.net — Russian central bank slams ruling in $1bn Sberbank swaps case
- Wikipedia — List of trading losses
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