US / EU / UK Russian Sanctions Updates Effective 5 December 2022: The Import Ban & The G7 Oil Price Cap
Étude de marché 9 décembre 2022 9 décembre 2022
Royaume-Uni et Europe
As of 5 December 2022, the EU, UK and US have imposed stringent prohibitions on Russian-origin oil related to trade, transportation and services. These new sanctions include: i) wide-ranging import bans on crude oil into the UK and EU; ii) bans on associated ancillary services; and, iii) a price cap of $60 per barrel, making available UK, EU and US services available to third country importers and exporters, so long as the price paid for Russian oil is below that cap.
These sanctions are aimed to primarily target the seaborne transportation of Russian oil and oil products in order to substantially reduce the size of the global market for Russian oil and oil product exports. Russia is the world’s second-biggest crude oil exporter, after Saudi Arabia, and in 2021 around half of those exports went to Europe. These strategic sanctions aim to substantially reduce Russian oil revenue.
With effect from 5 December 2022, EU Article 3m of Council Regulation No. 833/2014 (“Regulation 833”) bans the purchase, import or transfer, directly or indirectly, of crude oil products falling under CN code 2709 if they originate in Russia or are exported from Russia. It is also prohibited to provide, directly or indirectly, technical assistance, brokering services, financing or financial assistance or any other services relating to this prohibition. These prohibitions do not apply to crude oil falling under CN 2709 which is delivered by pipeline from Russia into Member States.
The G7 Oil Price Cap implemented in Article 3n of Regulation 833, applies to the supply or delivery by ship to third countries outside the EU. It allows the transport or the provision of technical assistance, brokering services or financing or financial assistance related to the trading, brokering or transport to third countries of crude oil falling under CN 2709 provided it is purchased at or below the price cap. There is a 45-day wind-down period for seaborne Russian oil purchased above the price cap, provided it has been loaded onto a vessel at the port of loading prior to 5 December 2022 and unloaded at the final port of destination prior to 19 January 2023.
Compliance with the price cap for EU actors relies on an attestation regime which splits entities and individuals into three tiers These tiers impose different obligations on entities to obtain information that seaborne Russian oil was purchased at or below the price cap. In all cases, this information should be held from the moment EU actors conclude their contracts in relation to the transport of Russian oil to third countries and should be retained for a minimum of five years. Tier 1 includes actors who have direct access to price information in the ordinary course of business (such as commodities brokers and traders), Tier 2 includes actors who are sometimes able to request and receive price information from their customers in the ordinary course of business (such as financial institutions) and Tier 3 involves actors who do not have direct access to price information in the ordinary course of business (such as insurers and shipowners). Both the UK and US have established similar regimes.
Similarly, under Regulations 46Z3 to 46Z9 of the Russia (Sanctions) (EU Exit) Regulations 2019 the UK has introduced a ban on the import, acquisition, supply and delivery of all Russian crude oil falling under HS code 2709 from 5 December 2022. The UK has also banned the direct or indirect provision of technical assistance, financial services, funds or brokering services in relation to the import or acquisition of crude oil products originating or consigning from Russia.
The UK has also implemented the Oil Price Cap as an exception to the prohibition by way of a General License, allowing UK service providers to supply or deliver Russian oil by ship from a place in Russia to a third country or from one third country to another third country provided that the unit price of the Russian oil concerned is at or below the price cap. UK service providers may also provide relevant services if the same conditions are met. The UK has echoed the EU wind-down period which expires on 19 January 2023, for crude oil loaded prior to 5 December 2022.
As in the EU, a tiered system will be used to impose attestation obligations on UK actors for compliance with the cap. However, the UK requires parties to use a General License, issued by OFSI on behalf of HM Treasury, to undertake specified activities which would otherwise be prohibited by sanctions legislation, such as use of the oil price cap exception. Further, the UK imposes more stringent reporting obligations than the EU for compliance with the price cap. Records should be retained for four years beyond the calendar year in which the record was created.
The position in the US is slightly different. As a starting point, all imports of crude oil; petroleum, petroleum fuels, oils and products of their distillation; liquefied natural gas; coal; and coal products of Russian Federation origin into the United States were prohibited by Executive Order of 8 March 2022. This order also prohibited any new investment in the energy sector in the Russian Federation by a United States person, and financing or enabling financing companies that are making investment to produce energy in Russia.
However, the US has also now implemented the Oil Price Cap alongside the G7 through a Determination pursuant to Section 1(a)(ii) of Executive Order 14071, with effect from 5 December 2022. As discussed above, the effect is to authorise US persons to provide certain services that relate to the maritime transport of Russian oil to third countries, as long as that Russian oil is purchased at or below a certain price: the price cap, which is currently set at $60 per barrel. These services are:
- Trading/commodities brokering;
- Insurance, including reinsurance and protection and indemnity;
- Flagging; and
- Customs brokering.
Similar to both regimes discussed, a tiered attestation regime regulates compliance with the price cap. However, the reporting and record keeping obligations align more with the EU requirements. Documentation must be retained for five years but there are no reporting obligations for any tier of actor. The price cap exception will also apply to all US service providers without need for a license as in the UK. Therefore, provided Russian crude oil is purchased at or below the price cap, US persons can provide the services above in relation to the maritime transport of oil to third countries.
What do you need to do?
The three regimes considered include broadly similar provisions in relation to the price cap, however there are differences that need to be considered, specifically with regard to licensing and reporting.
From 5 February 2023, the same UK and EU prohibitions will apply to petroleum products falling under CN/HS code 2710, and the G7 price cap exception will also be extended to these products. No similar wind-down period has been announced. Therefore, it is important that UK, EU and US actors implement measures now to smoothly adapt to this change.
If you require any specific advice on the general prohibitions or the oil price cap imposed by the sanctions, then please do not hesitate to contact a member of our Sanctions Team .