Key Takeaways:

  • The G7 recently announced new price caps with respect to seaborne petroleum products that originate in Russia.
  • The price cap for discount to crude petroleum products of Russian origin is $45 per barrel and the cap for premium to crude petroleum products of Russian origin is $100 per barrel.
  • The U.S., EU, and UK have issued updated guidance regarding, among other things, a wind down period for petroleum products and the types of products that are covered by each jurisdiction's respective policy.

In order to continue restricting Russia's ability to finance war efforts against Ukraine, on February 3, 2023, the G7 nations implemented two new price caps on seaborne petroleum products that originate in Russia ("Russian Petroleum"). For discount to crude Russian Petroleum (e.g., fuel oil and naphtha), the price cap is $45 per barrel, while the price cap for premium to crude Russian Petroleum (principally diesel) is $100 per barrel. Both types of Russian Petroleum are defined in the guidance documents discussed below. Further, these price caps compliment a price cap of $60 per barrel on crude oil originating in Russia ("Russian Oil") that was established by the G7 in December 2022. Around the same time, as discussed in a prior alert, the U.S., EU, and UK implemented price cap policies regulating the provision of particular services connected to the maritime transportation of Russian Oil and Russian Petroleum. Each of the policies (summarized below), which have recently been updated to account for the Russian Petroleum price caps, contains safe harbor provisions and a few limited authorizations, requiring certain parties to keep records and make specific attestations to avoid liability.

The U.S. price cap policy bans the provision of the following services ("Covered Services") when the price of the seaborne Russian Petroleum or Russian Oil is at or above the respective price caps described above: (1) trading/commodities brokering; (2) financing; (3) shipping; (4) insurance (including reinsurance and protection and indemnity); (5) flagging; and (6) customs brokering. This policy prohibits "the exportation, reexportation, sale, or supply" of the Covered Services, from the U.S.-or by a U.S. person, wherever located-to any person living in Russia. Notably, however, the U.S. policy contains a safe harbor provision, allowing people (or entities) to provide the Covered Services, without being punished for mistakenly violating the policy.

When parties adhere to established recordkeeping procedures and make particular due diligence attestations regarding the price at which the Russian Oil or Russian Petroleum was purchased, they will not be held liable-even though violations of U.S. sanctions are typically enforced under a strict liability standard. According to the U.S. Department of Treasury's Office of Foreign Assets Control ("OFAC") guidance, which establishes three tiers of compliance, the level of diligence that relevant actors must perform is contingent upon the type of service provider and their access to price information. In addition to this safe harbor process, and some other exceptions found in its guidance, OFAC has provided several general licenses permitting certain transactions involving Russian Oil or Russian Petroleum. For example, General License No. 57A, authorizes transactions "that are ordinarily incident and necessary to addressing vessel emergencies related to the health or safety of the crew or environmental protection."

The EU and UK have price cap policies that are similar to the U.S.' policy. While the provisions in all three price cap policies tend to apply to both Russian Oil and Russian Petroleum, these policies have been updated recently and contain a few provisions that relate solely to Russian Petroleum, which bear mention. First, all three jurisdictions provide wind down periods, whereby Russian Petroleum that is loaded onto a vessel at the port of loading before 12:01AM on February 5, 2023, and unloaded at the port of destination before 12:01AM on April 1, 2023, is not subject to the price cap policies.

Second, each jurisdiction has separate (yet similar) standards for identifying both premium to crude and discount to crude petroleum products and determining whether petroleum products are subject to their respective price cap policies. The U.S. policy covers petroleum products that are defined in the Harmonized Tariff Schedule of the United States ("HTSUS") heading 2710. Articles defined in certain subheadings are subject to the premium to crude price cap, while all the others are subject to the discount to crude price cap. The EU determines whether a petroleum product is classified as discount to crude or premium to crude and, in turn, determines which price cap, if any, it is subject to, based on the classifications in CN code 2710 (part of Annex XXVIII to Regulation (EU) No 833/2014). The UK classifies petroleum products under the harmonised system (HS) codes. "For goods which fall under HS heading 2710, the applicable price cap is determined by the categorisation of products (by HS sub-heading) as either 'premium to crude' or 'discount to crude.'"

Foley Hoag will continue to provide updates as the situation with respect to Ukraine develops. Companies with questions about these actions or how to ensure compliance with U.S. sanctions and export control regulations should contact a member of Foley Hoag's International Trade & National Security practice. For information on earlier Russia-related actions, see our prior Client Alerts on our Russia and Belarus Sanctions practice page.

Law Clerk Nicholas Bergara co-authored this alert.

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