Today, the Biden Administration issued a new Executive Order (E.O.) banning imports of Russian-origin energy into the United States and prohibiting new investments in the Russian energy sector. Although the United States imports relatively little energy from Russia, the move is seen as an important measure to reduce Russia's access to foreign currency. The investment ban is likely to cement the U.S. withdrawal from the Russian energy sector, following recent announcements by U.S. and other western energy companies that they are pulling back from projects in Russia in response to the invasion of Ukraine.
Import Ban
The E.O. prohibits the import of Russian-origin crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products into the United States. According to guidance released by the Office of Foreign Assets Control (OFAC), the import ban applies to energy products that were produced, manufactured, extracted, or processed in Russia, but not to energy goods that have been incorporated or substantially transformed into foreign-made products. The ban does not apply to imports of other forms of energy and does not prohibit imports of non-Russian origin energy products that merely transited through Russia.
OFAC issued General License No. 16 to authorize U.S. persons to engage in transactions that are ordinarily incident to the import of prohibited energy products until 12:01 a.m. eastern daylight time, April 22, 2022 so long as such transactions are conducted pursuant to written contracts or written agreements entered into prior to March 8, 2022. OFAC also clarified that non-U.S. persons will not be subject to U.S. sanctions under the new E.O. for importing Russian energy products into other countries, so long as those activities do not involve sanctioned parties and do not otherwise involve prohibited transactions.
Investment Ban
Because the United States imports relatively little energy from Russia, the E.O.'s ban on new energy investment in Russia is likely to be more impactful for U.S. industry than the import ban. The E.O. broadly prohibits any new investment in Russia's energy sector by a U.S. person, wherever located. "New investments" are defined in guidance from OFAC as any transaction that "constitutes a commitment or contribution of funds or other assets for, or a loan or other extension of credit to, new energy sector activities" located or occurring in Russia beginning on or after March 8, 2022. "New investments" do not include transactions related to maintenance or repair.
The "energy sector" is defined broadly by OFAC to include:
The procurement, exploration, extraction, drilling, mining, harvesting, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, or transport of petroleum, natural gas, liquified natural gas, natural gas liquids, or petroleum products or other products capable of producing energy, such as coal or wood or agricultural products used to manufacture biofuels, and the development, production, generation, transmission or exchange of power, through any means, including nuclear, electrical, thermal, and renewable.
Pending Legislative Action
Shortly after President Biden signed the E.O., House Speaker Nancy Pelosi announced that the House of Representatives would vote on bipartisan legislation to impose additional trade controls on Russia, including a statutory ban on the import of Russian oil and energy products; a review of Russia's access to the World Trade Organization; and reauthorization and expansion of the Global Magnitsky Human Rights Accountability Act, which authorizes sanctions in response to human rights abuses. The bill does not include a provision to revoke Russia's Permanent Normal Trade Relations (PNTR) status, despite bipartisan, bicameral proposals unveiled over the past week. A revocation of PNTR status would dramatically increase tariffs on imports of certain Russian goods, including metals and other commodities that are key inputs for certain U.S. industries. It is not clear when or if the Senate will take up the measure.
Related International Developments
As has been the case throughout the crisis, the Biden Administration's action today reflects close coordination with international allies. Across the Atlantic, the UK government announced today that it will phase out imports of Russian oil and refined products by the end of 2022. The ban will not apply to imports of Russian natural gas, although the UK is "exploring options" to further reduce its share of natural gas from Russia. The European Union also moved today to reduce its reliance on Russian energy, with the release of a proposed plan to make Europe independent from Russian fossil fuels - beginning with natural gas - "well before 2030." A European Commission press statement notes the effort may reduce EU demand for Russian gas by two-thirds by the end of 2022. The Canadian government announced last week that it would ban imports of Russian crude oil in a largely symbolic action given that Canada does not currently import Russian crude.
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