U.S., EU, and UK Price Cap Sanctions Prohibiting Services for Maritime Transport of Russian Petroleum Products

5 minute read
February.09.2023

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.

Highlights:

The coalition has implemented a two-tiered price cap on Petroleum Products based on how those products are typically traded on the market: a $100 per barrel price cap for Petroleum Products that trade at a premium to crude (“Premium to Crude”) and a $45 per barrel price cap for Petroleum Products that trade at a discount to crude (“Discount to Crude”).
The price caps are subject to change.
The Petroleum Products price cap policy is largely identical to the crude oil price cap policy. The European Union, United States, and United Kingdom have extended their guidance on the crude oil price cap policy to Petroleum Products.
Orrick’s client alert describing the crude oil price cap policy can be found here.

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:

2710.12.15	2710.19.11.15	2710.19.11.06	2710.19.24	2710.20.10.07
2710.12.18	2710.19.11.25	2710.19.11.07	2710.19.25	2710.20.10.08
2710.19.06.05	2710.19.11.50	2710.19.11.08	2710.19.26	2710.20.10.11
2710.19.06.15	2710.19.11.02	2710.19.11.11	2710.20.10.02	2710.20.10.13
2710.19.06.25	2710.19.11.03	2710.19.11.13	2710.20.10.03	2710.20.10.14
2710.19.06.30	2710.19.11.04	2710.19.11.14	2710.20.10.04
2710.19.06.35	2710.19.11.05	2710.19.16	2710.20.10.05

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:

A person/entity may supply or deliver Petroleum Products 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 Petroleum Products is at or below the price cap; and
A service provider may provide relevant services to any person provided that the unit price of the Petroleum Products being supplied or delivered by ship from a place in Russia to a third country or from a third country to another third country is at or below the price cap.

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.

Authors

Harry Clark Partner, International Trade and Investment, Mergers & Acquisitions

Washington, D.C.

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Technology & Innovation Sector
International Trade and Investment
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Harry Clark Partner

Washington, D.C.

Harry is experienced in areas such as CFIUS/Exon-Florio examinations of foreign investment, military and “dual use” export control regulations (ITAR/EAR), economic sanctions administered by the U.S. Treasury Department (OFAC), customs regulations, the Foreign Corrupt Practices Act, anti-money laundering rules, anti-boycott requirements and defense industrial security requirements. He executes internal corporate investigations regarding trade and investment rules and advises on such rules in the context of corporate transactions.

Additionally, Harry has extensive experience with government contracting matters. His government contracting work has included, for example, design and implementation of U.S. Defense Department renewable energy projects. He also represents broad industry coalitions on major trade litigations and international negotiations. His experience in these areas includes a leading role in what is often considered the largest-ever international trade dispute: the controversy regarding unfair softwood lumber imports from Canada. It has involved myriad administrative proceedings before federal agencies, NAFTA panel appeals, WTO dispute proceedings, judicial proceedings and international settlement agreements.

Harry has represented a coalition of major U.S. oil companies in antidumping and countervailing duty litigation. As a related matter, he pursues policy issues with congressional and executive branch officials and advises on international trade rules (e.g., GATT, WTO agreements and NAFTA).

Chambers 2022 recognizes Harry as a leader in the field of export controls and economic sanctions (Chambers Global and Chambers USA), as well as CFIUS (Chambers USA). Previous editions have also recognized Harry’s achievements regarding his work related to the Foreign Corrupt Practices Act. Clients note that Harry provides “accurate, straightforward guidance incredibly efficiently” and “he has an ability to translate complex legal requirements and rules into business-friendly jargon.”

Jeanine P. McGuinness Partner, International Trade and Investment, FCPA & Anti–Corruption

Washington, D.C.

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Practice:

International Trade and Investment
FCPA & Anti–Corruption
Anti Money Laundering and Bank Secrecy Act
Mergers & Acquisitions
Environmental, Social & Corporate Governance (ESG)
Strategic Advisory & Government Enforcement (SAGE)

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Jeanine P. McGuinness Partner

Washington, D.C.

Jeanine’s clients include major U.S. and foreign financial institutions, and pharmaceutical, technology, telecommunications, energy, and natural resources companies.

Examples of Jeanine’s experience include:

Represents clients in preparing voluntary self-disclosures, administrative subpoena responses and license applications, and represents companies in connection with enforcement actions by the Treasury Department’s Office of Foreign Assets Control (OFAC)
Provides policy and compliance advice to clients affected by frequent changes in U.S. sanctions, including sanctions targeting Iran, Cuba, and Russia/Ukraine
Assists foreign purchasers of U.S. companies in national security reviews, including navigating the CFIUS process, through preparation of notices, meetings with CFIUS member agencies, advising on follow-on investigations, and negotiating and implementing mitigation agreements
Assists clients in developing and updating economic sanctions, anti-money laundering, and anti-corruption compliance policies and procedures
Represents financial institutions in connection with U.S. federal and state enforcement actions regarding compliance with U.S. anti-money laundering laws and regulations
Represents lenders, underwriters, borrowers, and issuers in international lending and capital markets transactions regarding sanctions, anti-corruption, and anti-money laundering issues
Advises a U.S. trade association and its member banks regarding U.S. sanctions, anti-corruption, and anti-money laundering issues in lending transactions, and prepares guidance for the industry on these matters
Advises financial institutions on the application of U.S. anti-money laundering regulations, with specific emphasis on customer identification program (CIP)/know your customer (KYC)/customer due diligence (CDD) requirements and suspicious activity reporting requirements
Regularly advises private equity and hedge funds regarding compliance with U.S. anti-money laundering and sanctions laws and regulations, including with respect to appropriate provisions in subscription materials and enhanced due diligence on high-risk investors
Advises clients regarding sanctions-related inquiries from the Securities and Exchange Commission (SEC) and state agencies implementing divestment laws and assists clients in preparing sanctions-related disclosure for inclusion in annual reports to the SEC

Jeanine is ranked in both the CFIUS Experts and Export Controls & Economic Sanctions categories by Chambers USA in 2019, 2020, 2021, and 2022. An interviewee had this to say of their experience working with Jeanine, “I am continuously impressed by her extensive knowledge, excellent communication skills and her ability to wrap her subject matter expertise around the details of the matter and then drive conclusions or recommendations for next steps."

Elizabeth Zane Partner, International Trade and Investment, Mergers & Acquisitions

Washington, D.C.

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International Trade and Investment
Mergers & Acquisitions
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Elizabeth Zane Partner

Washington, D.C.

Elizabeth's experience includes work on internal investigations, voluntary disclosures, commodity jurisdiction requests and developing and implementing compliance programs. She also advises clients on government contracting matters.

Dr. Lars Mesenbrink Partner, Antitrust & Competition, International Trade and Investment

Düsseldorf

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Dr. Lars Mesenbrink Partner

Düsseldorf

His background in economics, Chinese language skills and extensive international experience add to his excellent legal knowledge and allow him to advise his clients on a comprehensive basis.

Lars has represented clients before the European Commission and the German Federal Cartel Office in all areas of competition law, inter alia including mergers, compliance, cartels, litigation and abuse of dominance.

In these areas, he provides companies with innovative solutions on high-profile complex matters including private damages actions and cartel investigations, often involving multiple jurisdictions.

Lars also pursues international trade and compliance matters, including matters involving foreign investment filings in Germany.

Adam Rizzo Partner, Government Investigations and Enforcement Actions, Internal Investigations

London

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Government Investigations and Enforcement Actions
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Complex Litigation & Dispute Resolution

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Adam Rizzo Partner

London

Adam is a disputes lawyer with a focus on high-stakes litigation and regulatory enforcement. He handles commercial disputes, internal investigations and regulatory enforcement matters.

Adam has acted on disputes for a wide range of commercial clients including financial institutions, professional services firms and technology companies. He has pursued and defended claims for clients for breach of contract, misrepresentation, breach of fiduciary duties, negligence, breach of warranty, breach of confidence and fraud. Adam's cases are international in nature and often arise in an insolvency context in which he regularly assists clients with bringing and defending interim applications, and launching recovery and enforcement actions.

With deep experience in advising clients on insurance disputes, Adam has assisted policyholders with coverage claims across various industries and lines of insurance, including claims for losses linked to the war in Ukraine.

Adam also conducts internal investigations for companies and boards of directors and has represented companies, firms and individuals in regulatory inquiries and enforcement actions including those brought by the Financial Reporting Council (FRC), the Insolvency Service and the Serious Fraud Office (SFO). Adam has particular expertise in dealing with internal investigations and regulatory matters which relate to financial reporting, but has also acted in matters in the fintech, invoice finance and asset-based lending sectors. As part of his wider regulatory practice, Adam advises clients on the UK financial sanctions and export controls regime.

Recognised by Legal 500 as a recommended individual, Adam is described as “efficient and highly personable... excellent at running cases on a day-to-day basis”.

Mark Beeley Partner, International Arbitration & Dispute Resolution, Oil & Gas

London

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Energy & Infrastructure Sector
International Arbitration & Dispute Resolution
Oil & Gas
Energy
Complex Litigation & Dispute Resolution
FCPA & Anti–Corruption
Africa

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Mark Beeley Partner

London

Mark acts as advocate and counsel in international arbitrations (both commercial and investor-state) and in litigation in the English and DIFC courts. He has particularly deep experience in energy disputes, but also regularly acts in construction, technology, insurance, shareholder and white-collar/civil fraud matters (including advising on sanctions and export controls), as part of a broader commercial practice.

Mark has acted in arbitrations under the ICSID, LCIA, UNCITRAL, ICC, HKIAC, SIAC, LMAA, DIAC, AAA and other arbitration rules in disputes seated around the globe concerning multiple governing laws and is recognised in the leading directories for arbitration and natural resources disputes. In addition, he sits as arbitrator (including both as chairman and sole arbitrator). He previously practiced in Dubai as a Registered Foreign Lawyer and maintains a practice as advocate (and solicitor) in both the English and DIFC Courts (along with supervising cross-border litigation in multiple jurisdictions). Mark has been recognised as a foreign expert in disputes in both the UAE and India by Chambers. He has been consistently ranked by Chambers for arbitration, as well being recognised in Legal 500 for both arbitration and commercial litigation.

He has a particular interest in energy sector disputes, including those in the upstream and LNG areas (per Chambers & Partners UK 2018 he knows “oil and gas inside out” and is recognised in Who's Who Legal for Energy, Chambers UK for Energy & Natural Resource Disputes and Legal 500 for Oil & Gas), but has dealt with matters across the industry, running the gamut from seismic acquisition agreements through to IP disputes involving refined products, carbon trading agreements and the construction of renewable projects. He currently leads the AIPN Model Form Revision sub-committee focusing on the dispute resolution aspects of the model form JOA.

Beyond energy, Mark has acted in the infrastructure/construction, technology, insurance, crypto-currency, fintech, pharmaceutical, telecoms, insurance and finance sectors (amongst others) and also advises extensively (both in the advisory context and in leading investigations/claims) in relation to white-collar/fraud matters, including money laundering, bribery, sanction and export control issues.

Originally called to the English Bar and now practicing as a solicitor-advocate, Mark frequently publishes and speaks on arbitration and energy matters, including on questions of sovereign immunity, res judicata, arbitration procedure, the award of interest and other questions on damages. He features in two categories of Who’s Who Legal, Arbitration and Energy 2020. Mark serves as a member of the ICC UK Arbitration & ADR Committee and also leads Orrick's London Office.

Maria Sergeyeva Senior Associate, International Trade and Investment, Strategic Advisory & Government Enforcement (SAGE)

Washington, D.C.

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Maria Sergeyeva Senior Associate

Washington, D.C.

Maria's previous experience as a member of the Mergers and Acquisitions group is instrumental in her reviews of the trade aspects of various M&A and other cross-border transactions.

Maria draws upon her experience in Washington, D.C., Moscow (Russia) and Almaty (Kazakhstan) to approach her work with a broad perspective on international trade-related and other matters. Prior to joining Orrick, Maria worked at the Office of the General Counsel of a multilateral development bank, handled tax and legal matters at one of the Big Four accounting firms, and oversaw the design and implementation of an export compliance program for an international development firm and a U.S. government contractor.

Alexander Witt Managing Associate, International Arbitration & Dispute Resolution, Energy & Infrastructure

London

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International Arbitration & Dispute Resolution
Energy & Infrastructure
Oil & Gas
Latin America

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Alexander Witt Managing Associate

London

Alexander has represented Latin American States in a variety of claims under domestic and international law, including high-profile and politically sensitive investment treaty cases, and the termination of large energy projects. In addition to his international arbitration experience, Alexander also advised clients in the fields of Public International Law and EU Competition Law. He is fluent in Spanish and has a good command of German.

Julia Fabian Managing Associate, Antitrust & Competition, Mergers & Acquisitions

Düsseldorf

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Practice:

Technology & Innovation Sector
Antitrust & Competition
Mergers & Acquisitions
Private Equity
Strategic Advisory & Government Enforcement (SAGE)

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Julia Fabian Managing Associate

Düsseldorf

She advises domestic as well as international clients on German and European antitrust and competition law, including mergers, compliance, internal investigations, cartels and abuse of dominance. In addition, Julia advises on foreign direct investment proceedings before the German Federal Ministry of Economic Affairs and Climate Action . Another part of her practice is to provide general corporate counselling.

At the beginning of her career at Orrick, Julia advised national and international clients on complex cross-border mergers and acquisitions, private equity and venture capital investments, so she is experienced in corporate transactions to that extent.

Prior to joining Orrick, Julia worked as research assistant and trainee lawyer for several international law firms in Düsseldorf and Frankfurt.

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International Trade and Investment