Implementing The Russian Oil Price Cap – Most Recent U.S. Guidance – Export Controls & Trade & Investment Sanctions

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On December 5, 2022, the US Treasury’s Office of Foreign Assets Control (“OFAC”) announced a price ceiling of $60 per barrel on marine shipments of crude oil of Russian origin. The final cap level is implemented multilaterally by the Price Coalition, which includes the Group of 7 countries (“G7”) and Australia.

The system for enforcing the price cap under US law was completed through a determination dated November 22, 2022 (“Determination”) issued by OFAC pursuant to section 1(a)(ii) of Executive Order 14071, which prohibits certain services related to the marine transportation of crude oil of Russian origin. Concurrent with the determination, OFAC issued updated guidance (“Guidance”) providing additional details on implementation. The price ceiling applies to “crude oil” as defined in the Harmonized Tariff Schedule of the United States (“HTSUS”) in section 2709.00.

A related cap level will soon be announced for petroleum-based products, which will take effect on February 5, 2023. OFAC has stated that it expects to issue initial guidance related to these products in the near future.

Prohibited services

The determination implementing the price ceiling for oil of Russian origin prohibits the export, re-export, sale or supply, directly or indirectly, from the United States or by a US person, anywhere, of selected services in connection with the maritime transportation of purchased crude oil of Russian origin at the price ceiling of $60 or below. The guidelines describe the prohibited services as follows:

  • Commodity trading/brokerage: Buying, selling or trading goods and/or brokering the sale, purchase or trade of goods on behalf of other buyers or sellers.

  • Mmmn: Commitment to submit or disburse any debt, equity, funds or economic resources, including grants, loans, guarantees, guarantees, bonds, letters of credit, supplier credit, buyer credit and import or export advances.

  • Shipping: owning or operating a ship for the purpose of carrying or delivering cargo and/or transporting cargo; Renting or sub-chartering of ships for the transfer of cargo or the transport of cargo; Mediation between shipowners and hirers; and acts as a shipping/shipping agent.

  • Insurance: provision of insurance, reinsurance or protection and indemnity services (“P&I”); satisfying claims related to the underwriting of insurance policies that protect the insured against losses that may occur as a result of damage to property or liability; Taking all or part of the risk involved in existing insurance policies originally signed by other insurance companies, including reinsurance of a non-US insurance company by a US person; and liability insurance for marine liability risks associated with operating a vessel, including cargo, hull, vessel, P&I and lessor liability.

  • flag: Registering or maintaining the registration of a vessel in the national ship registry of a country. This definition does not include flagging of ships carrying Russian oil sold above the price ceiling.

  • Customs Clearance: Assistance to importers and exporters in meeting the requirements governing import and export. This definition does not include legal services or assistance to importers and exporters in meeting US sanctions requirements.

The ban on financing is relatively narrow and the guidelines seek to clarify what is prohibited and what is prohibited for banks. Financing yes No Includes processing, clearing or sending payments by intermediary banks when the bank (a) acts exclusively as an intermediary and (b) does not maintain direct contact with the party providing the prohibited services. However, the rules prohibiting concessions continue to apply and financial institutions may face situations where they do not provide financing under the directive, but their services are prohibited nonetheless.

Additional services are not included

Shipping, freight, customs and insurance costs are not included in the price ceiling and must be invoiced separately and at commercially reasonable rates. A commercially unreasonable charge in these categories may be viewed by OFAC and other regulators as a sign of possible evasion.

The scope of the price ceiling

The guidance clarifies that the price ceiling applies only to sales related to First transfer point of marine oil to land. Subsequent onshore sales, or sales of Russian oil and petroleum products transported solely by pipeline, are not subject to the cap but may be subject to other import prohibitions. If the Russian oil is shipped by sea transport without being substantially modified outside the Russian Federation, the price cap will still apply. However, once the oil has undergone a “substantial change” in a jurisdiction outside the Russian Federation, it is no longer considered to be of Russian Federation origin and is no longer subject to the cap.

Safe harbor and compliance

The guidance explains that OFAC will provide a “safe harbor” to service providers who comply in good faith with the recordkeeping and approval process. This process was described in our previous post (here). The guidelines state that service providers must keep relevant records for five years. It also provides a model permit for service providers seeking to use the port.

The guidance makes clear that OFAC will not impose a penalty against a US service provider that reasonably relies on the documentation or certifications described in the guidance. Instead, OFAC states that it will focus its enforcement response on players who intentionally violate or evade the price cap.

Finally, the guidance states that if a US person becomes aware of violations related to the price cap, they must stop providing related services and report the suspicion to OFAC.

General Licenses

OFAC simultaneously issued the following three general licenses. This includes:

  • General license 55which authorizes transactions related to the marine transportation of crude oil originating from the Sakhalin-2 project until September 30, 2023, provided that the by-product of Sakhalin-2 is intended solely for import to Japan.

  • General license 56which permits transactions related to the import of crude oil to Bulgaria, Croatia or EU member states without an outlet, if the supply of crude oil by pipeline is interrupted for reasons beyond the control of that EU member state, as described in Council Regulation (EU) 2022/879.

  • General license 57, which authorizes transactions that are usually accidental and necessary to deal with vessel emergencies related to the health and safety of the crew or the protection of the environment.

Specific licenses may be available on a case-by-case basis.

partner countries

Individual members of the Price Coalition have issued country-specific guidelines for implementing the cap. These guidelines should be reviewed in addition to the bodies operating in the relevant jurisdictions.

The content of this article is intended to provide a general guide to the subject. Expert advice should be sought regarding your specific circumstances.

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