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Effective February 5, 2023, a coalition of G7 countries, Australia, and the European Union have generally forbidden service providers to provide certain services relating to the maritime transport of certain Russia-origin petroleum products (“Petroleum Products”) purchased above the relevant price cap. Building on the price cap policy for crude oil that came into effect on December 5, 2022, this prohibition aims to further reduce Russia’s ability to fund its war in Ukraine.
I. United Price Cap Policy
Pursuant to a Determination effective February 5, 2023, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) has extended its guidance on the implementation of its crude oil price cap policy to Petroleum Products.
Petroleum Products covered by the new price caps are articles defined at Harmonized Tariff Schedule of the United States (“HTSUS”) heading 2710. Petroleum Products are categorized as follows:
1. Premium to Crude articles, including gasoline, motor fuel blending stock, gasoil and diesel fuel, kerosene and kerosene-type jet fuel, vacuum gas oil, and all HTSUS heading 2710 articles listed in the table below:
2. Discount to Crude articles, including naphtha, residual fuel oil, waste oils, and all HTSUS heading 2710 articles not listed in the table above.
Any Petroleum Products that were loaded onto a vessel at the port of loading prior to 12:01 a.m. EST on February 5, 2023, and are unloaded at the port of destination prior to 12:01 a.m. EST on April 1, 2023, are not subject to the above price caps, and U.S. service providers can continue to provide services with respect to such products purchased at any price. In addition, once the Petroleum Products are substantially transformed in a jurisdiction other than Russia, they are no longer considered to be of Russian origin, and thus the above product caps no longer apply. OFAC clarified that blending is only considered substantial transformation when it results in a tariff shift of the Petroleum Product.
In all other respects, the new combined guidance relating to Petroleum Products price caps is identical to OFAC’s initial guidance relating to the crude oil price cap.
OFAC issued general licenses authorizing services related to the importation of Petroleum Products into Bulgaria, Croatia, or landlocked EU Member States, and emergency services for vessels related to the health or safety of the crew or environmental protection.
II. European Union Price Cap Policy
The European Commission’s Petroleum Products price cap policy prohibits service providers located or active in the EU to transport Petroleum Products purchased above the relevant price cap to third countries by sea and to provide technical assistance, brokering services, or financing or financial assistance related to such transport, including flagging and registration services.
The new Petroleum Products price cap policy follows the EU Council Decision (CFSP) 2022/1909 of October 6, 2022, establishing exemptions for certain services related to crude oil and Petroleum Products originating in or being exported from Russia when purchased at or below the relevant Petroleum Products price cap.
Annex XXVIII to Regulation (EU) 833/2014 categorizes Petroleum Products falling under the European Union’s Combined Nomenclature (“CN”) Code 2710 among the two Petroleum Products price caps. The European Commission offers a database to identify products falling under the respective CN codes. It has also updated its “Guidance on Russian oil price cap”, which now includes additional guidance regarding the price caps for Petroleum Products.
When dealing with Petroleum Products, EU operators have to comply with the same recordkeeping and attestation process as for Russian crude oil. While there is no mandatory form of attestation, the European Commission provides for a (non-binding) attestation model in its guidance.
III. United Kingdom Price Cap Policy
On February 3, 2023, the UK’s Office of Financial Sanctions Implementation (“OFSI”) amended General License INT/2022/2469656 (“General License”) to introduce price caps for Premium to Crude and Discount to Crude products, which became effective on February 5, 2023. OFSI also updated its Industry Guidance on the UK Maritime Services Prohibition and Oil Price Cap. Under the provisions of the General License:
General License also allows processing of payments in connection with such authorized activities.
OFSI uses HS codes to determine the applicability of the different price caps, as shown in the table below:
|Per barrel for the below commodity codes ("Premium to Crude") — USD 100|
|2710 12 31|
|2710 12 41|
|2710 12 45|
|2710 12 49|
|2710 12 50|
|2710 12 70|
|2710 12 90|
|2710 19 11|
|2710 19 15|
|2710 19 21|
|2710 19 29|
|2710 19 31|
|2710 19 35|
|2710 19 43|
|2710 19 46|
|2710 19 47|
|2710 19 48|
|2710 19 71|
|2710 20 11|
|2710 20 16|
|2710 20 19|
|Per barrel for all other 2710 commodity codes ("Discount to Crude") — USD 45|
The exemptions provided in the General License for Premium and Discount to Crude products are subject to the same attestation and recordkeeping requirements that were introduced in December 2022.
On February 3, 2023, OFSI also issued a wind-down general license, effective February 5, 2023, which, similar to the U.S. policy, creates an exemption for contracts to ship Petroleum Products traded at a price above the relevant price cap where such products were loaded before 5:01 a.m. GMT on February 5, 2023 and will be offloaded at a port of destination prior to 5:01 a.m. GMT on April 1, 2023.