On December 5, 2022, the maritime services ban targeting Russian-origin crude oil that previously had been announced by an international coalition of countries, including the United States, the European Union, and the United Kingdom, took effect.  While each coalition member has enacted its own measures to give effect to the ban (as we discussed previously here[1]), the measures enacted by the coalition members are generally consistent and include the same major features, namely, a maritime services ban and associated price cap “safe harbor” or exemption.[2]  Since the effective date of the maritime services ban, Russian President Vladimir Putin has issued a decree prohibiting the supply of Russian-origin oil and oil products to certain foreign persons applying the price cap, and OFAC has issued additional guidance relating to the upcoming implementation of the maritime services ban with respect to Russian-origin petroleum products.

This blog post focuses on implementation of the ban by the United States, the European Union, and the United Kingdom, as well as related recent developments.

Summary of the Maritime Services Ban

As announced, persons subject to the jurisdiction of a coalition member imposing the maritime services ban are prohibited from providing certain services related to the maritime transportation of Russian-origin crude oil.[3]  For example, the U.S. maritime services ban prohibits the direct or indirect exportation, reexportation, sale, or supply by a U.S. person or from the United States of certain services related to the maritime transportation of Russian-origin crude oil.

However, the precise scope of the services covered by the ban varies slightly from coalition member to coalition member.

  • The services covered by the U.S. maritime services ban include:  (1) trading/commodities brokering, (2) financing, (3) shipping, (4) insurance, including reinsurance and protection and indemnity, (5) flagging, and (6) customs brokering.
  • The EU maritime services ban prohibits directly or indirectly providing (1) technical assistance, (2) brokering services, or (3) financing or financial assistance, related to the trading, brokering, or transport, including through ship-to-ship transfers, of crude oil or petroleum products originating in or exported from Russia.
  • The UK maritime services ban prohibits directly or indirectly (1) supplying or delivering by ship Russian-origin crude oil from a place in Russia to a third country or from one third country to another third country, (2) providing financial services or funds in pursuance of or in connection with the supply referred to in (1), and (3) providing brokering services in relation to that supply.

The maritime services ban includes a price cap feature that provides a safe harbor or exemption from the ban if the Russian-origin crude oil being transported was sold below a certain price level.  The initial price cap – which remains in effect as of the date of this blog post – was set at USD 60 per barrel.  Thus, persons subject to the maritime services ban are permitted to provide covered services related to the maritime transportation of Russian-origin crude oil so long as such oil was sold at or below USD 60 per barrel.  The price cap is subject to change by the coalition members.

OFAC’s guidance regarding the U.S. maritime services ban makes clear that application of the price cap does not include separately invoiced and commercially reasonable shipping, freight, customs, and insurance costs, but OFAC’s guidance also indicates that the billing of commercially unreasonable shipping, freight, customs, and insurance costs is potential evidence of evasion of the maritime services ban.  The EU and UK maritime services bans provide for similar exclusions.

The price cap and maritime services ban cease to apply once the crude oil has been (i) “substantially” transformed or processed – i.e., refined or otherwise transformed, beyond mere blending, into a new product with a new name, character and use, such as a new Harmonized Tariff Schedule code, or (ii) passed customs clearance in a third country (unless such oil is brought back to maritime transport without substantial transformation).

To rely on the price cap safe harbor, persons subject to the maritime services ban are expected to conduct due diligence and must adhere to certain recordkeeping and attestation requirements, which together function to help ensure that the relevant Russian-origin crude oil was in fact sold at or below the price cap.  The specific recordkeeping and attestation requirements applicable to a market participant depend on the participant’s position in the market.[4]

Bans prohibiting the importation of Russian-origin crude oil and/or petroleum products enacted by certain coalition members (including the United States, the European Union, and the United Kingdom) otherwise remain in effect.

“Wind Down Period” and Exceptions

Persons subject to the U.S., EU, or UK maritime services bans are not prohibited from providing covered services related to the maritime transportation of Russian-origin crude oil that was loaded onto a ship or vessel before December 5, 2022 and will be offloaded on or before January 19, 2023.

In addition, coalition members have adopted various general licenses or exceptions authorizing transactions that would otherwise be prohibited by the maritime services ban.

  • The United States adopted three general licenses in relation to the U.S. maritime services ban that authorize (1) through 12:01 AM EDT on September 30, 2023, all transactions otherwise prohibited by the ban related to the maritime transport of crude oil originating from the Sakhalin-2 project (“Sakhalin-2 Byproduct”), provided that the Sakalin-2 Byproduct is solely for importation into Japan,[5] (2) certain transactions related to the importation of Russian-origin crude oil into the Republic of Bulgaria, the Republic of Croatia, or landlocked EU member states that are provided for in Council Regulation (EU) 2022/879,[6] and (3) subject to certain limitations, all transactions prohibited by the ban that are ordinarily incident and necessary to address vessel emergencies related to the health or safety of the crew or environmental protection, including safe docking or anchoring, emergency repairs, or salvage operations.[7]
  • The European Union adopted exceptions to the EU maritime services ban that apply when (1) the crude oil or petroleum products are only being loaded in, departing from, or transiting through Russia, provided that the owner and origin of the goods are non-Russian, (2) the services being provided relate to the transport of crude oil originating in the Sakhalin-2 Project from Russia to Japan,[8] or (3) the services being provided relate to transport necessary for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment, or as a response to natural disasters.[9]
  • The United Kingdom adopted three exceptions to the UK maritime services ban that authorize the provision of covered services where it can be demonstrated that (1) the crude oil being traded does not originate from Russia, is not owned by a person connected to Russia, and is only being loaded in, departing from, or transiting through Russia,[10] (2) the crude oil being traded is necessary to respond to an emergency,[11] or (3) the crude oil is being traded for a pre-defined “specified activity,” which includes supply or delivery by ship of Russian-origin oil originating from the Sakhalin-2 Project from Russia to Japan, as well as other activities.[12]

Response From Russia

On December 27, 2022, President Putin signed a decree[13] that prohibits the supplying of Russian-origin oil and oil products to any foreign person if the relevant contract directly or indirectly presupposes the application of the price cap, unless an exemption is granted by President Putin.  The prohibition applies to all stages of the supply chain, including the supplying of oil and oil products to end customers.  The prohibition is scheduled to take effect with respect to oil on February 1, 2023, and will take effect with respect to oil products after February 1, 2023 on a date to be announced.  The prohibition is initially scheduled to remain in force until July 1, 2023.  Given that most coalition members have already banned, or are scheduled to ban, the importation of Russian-origin oil and oil products, the practical consequences of this prohibition remain uncertain and appear to primarily implicate exempted projects or countries, and potentially non-coalition members that follow or adhere to the price cap.

Looking Ahead The coalition members have agreed to expand the maritime services ban to cover Russian-origin petroleum products (in addition to Russian-origin crude oil).  The maritime services ban is expected to take effect with respect to Russian-origin petroleum products on February 5, 2023.  On December 30, 2022, OFAC issued preliminary guidance regarding implementation of the U.S. maritime services ban relating to Russian-origin petroleum products.[14]  In addition to confirming the February 5, 2023 effective date, OFAC’s preliminary guidance, which notes that the pre-existing guidance will continue to apply, states that, among other things, (1) the ban will cover goods classified under Harmonized Tariff Schedule code/subheading 2710, (2) OFAC anticipates providing a “wind down period” similar to the “wind down period” described above, (3) OFAC anticipates expanding the general licenses related to the supplying of certain EU countries and emergency situations to cover Russian-origin petroleum products in addition to Russian-origin crude oil, and (4) OFAC anticipates issuing final, combined guidance regarding both Russian-origin crude oil and petroleum products prior to February 5, 2023.

[1] Cleary Trade Watch, “U.S. Treasury Department Issues Preliminary Guidance on Russian Oil Price Cap and Services Ban” (Sept. 12, 2022), available at https://www.clearytradewatch.com/2022/09/u-s-treasury-department-issues-preliminary-guidance-on-russian-oil-price-cap-and-services-ban/.

[2] The United States adopted the U.S. maritime services ban via a Determination issued by the U.S. Secretary of the Treasury under Executive Order 14071 on November 21, 2022[2] (and the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”) issued corresponding guidance at the same time).  U.S. Department of the Treasury, Determination Pursuant to Section 1(a)(ii) of Executive Order 14071, “Prohibitions on Certain Services as They Relate to the Maritime Transport of Crude Oil of Russian Federation Origin” (Nov. 21, 2022), available at https://home.treasury.gov/system/files/126/determination_11222022_eo14071.pdf; OFAC, “Guidance on Implementation of the Price Cap Policy for Crude Oil of Russian Federation Origin” (Nov. 22, 2022), available at https://home.treasury.gov/system/files/126/price_cap_policy_guidance_11222022.pdf.  The European Union adopted the EU maritime services ban via a number of regulatory measures amending Council Regulation (EU) 833/2014 and Council Decision (CFSP) 2014/512.  Council Regulation (EU) 2022/879 and Council Decision (CFSP) 2022/884 were published on June 3, 2022, and give effect to the EU maritime services ban.  The corresponding price cap exemption was published on December 3, 2022 by Council Regulation EU 2022/2367, Implementing Regulation 2022/2368 and Council Decision (CFSP) 2022/369.  The European Union has published various guidance on the EU maritime services ban.  European Commission, “Questions and Answers: G7 agrees oil price cap to reduce Russia’s revenues, while keeping global energy markets stable” (Dec. 3, 2022), available at https://ec.europa.eu/commission/presscorner/detail/en/QANDA_22_7469; European Commission, “Guidance on oil price cap” (Dec. 3, 2022), available at https://finance.ec.europa.eu/system/files/2022-12/guidance-russian-oil-price-cap_en_0.pdf.  The United Kingdom adopted the UK maritime services ban via an amendment to its Russia (Sanctions) (EU Exit) Regulations (“Russia Sanctions Regulations”) entitled.  Russia (Sanctions) (EU Exit) (Amendment) (No. 16) Regulations 2022 (“Amendment No. 16”).  The United Kingdom has published guidance on the UK maritime services ban.  HM Treasury, “UK Maritime Services Prohibition and Oil Price Guidance,” available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1126108/Russian_Oil_Services_Ban_-_HMT_Industry_Guidance.pdf.  The other coalition members adopted the maritime services ban via similar statutory or regulatory instruments.

[3] For purposes of the maritime services ban, “crude oil” means goods classified under Harmonized Tariff Schedule code/subheading 2709.

[4] The three “Tiers” of market participants, each of which are subject to their own recordkeeping and attestation requirements, are summarized below:

  • Tier 1:  Market participants with direct access to price information in the ordinary course of business/regular direct information about the price of crude oil, such as traders and brokers.
  • Tier 2:  Market participants who are sometimes able to request and receive price information from their customers in the ordinary course of business/with direct interaction with Tier 1 market participants but who do not have direct access to price information, such as financial institutions, ship/vessel agents/charters, and customers brokers.
  • Tier 3:  Market participants who do not regularly have direct access to price information in the ordinary course of business, such as insurers, protection and indemnity clubs, shipowners, and flagging registries.

[5] OFAC, Russia-related General License No. 55, “Authorizing Certain Services Related to Sakhalin-2” (Nov. 22, 2022), available at https://home.treasury.gov/system/files/126/russia_gl55.pdf.

[6] OFAC, Russia-related General License No. 56, “Authorizing Certain Services with Respect to the European Union” (Nov. 22, 2022), available at https://home.treasury.gov/system/files/126/russia_gl56.pdf.

[7] OFAC, Russia-related General License No. 57, “Authorizing Certain Services Related to Vessel Emergencies” (Nov. 22, 2022), available at https://home.treasury.gov/system/files/126/russia_gl57.pdf.

[8] Council Regulation (EU) 2014/833, Article 3n, sub-paragraphs 6(2) and 6(3) and Annex XXIX.

[9] Council Regulation (EU) 2014/833, Article 3n, paragraph 9.

[10] UK Russia Sanctions Regulations, 60HA.

[11] UK Russia Sanctions Regulations, 61(1B).

[12] Office of Financial Sanctions Implementation – General License – Oil Price Cap INT/2022/2470156 (December 4, 2022), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1121733/2470156_Sakhalin_Island_GL.pdf.  As of December 28, 2022, this general license also permits the following “specified activities”:  (1) the execution of contracts concluded before June 4, 2022, or of ancillary contracts necessary for the execution of such contracts, for the purchase, import, or transfer of Russian-origin oil into Bulgaria; (2) where there are no alternative supplies of vacuum gas oil available, the purchase, import, or transfer of vacuum gas oil falling under commodity code 2710 into Croatia, which is consigned from, or originates in, Russia; and (3) the supply or delivery by ship of crude oil originating in or consigned from Russia falling under commodity code 2709 for a landlocked European member state as described in Council Regulation (EU) 2022/879 of June 3, 2022, if the supply of crude oil by pipeline from Russia is interrupted for reasons outside the control of that member state.

[13] Decree of the President of the Russian Federation No. 961, “On application of special economic measures in the sphere of fuel and energy in connection with the establishment by some foreign states of a ceiling price for Russian oil and oil products” (Dec. 27, 2022), available at http://publication.pravo.gov.ru/Document/View/0001202212270015.

[14] OFAC, “Preliminary Guidance on Implementation of the Price Cap Policy for Petroleum Products of Russian Federation Origin” (Dec. 30, 2022), available at https://home.treasury.gov/system/files/126/price_cap_prelim_guidance_petroleum_products_20221230.pdf.