Russian Oil Price Cap & Prohibition on Maritime Services – the US Perspective

We understand that there is substantial interest in the policy to cap Russian oil prices, as agreed by the G7 economies (US, UK, France, Germany, Italy, Japan, and Canada), and are pleased to provide the following information on the subject:

1. G7 statement on the price cap & prohibition of services related to maritime transportation of Russian oil

On 2 September, a G7 finance ministers’ statement was issued, and a section of its paragraph five stated:

“…. today we confirm our joint political intention to finalise and implement a comprehensive prohibition of services which enable maritime transportation of Russian-origin crude oil and petroleum products globally – the provision of such services would only be allowed if the oil and petroleum products are purchased at or below a price (the price cap) determined by the broad coalition of countries adhering to and implementing the price cap.” 

In short, Russian oil can continue to be conveyed and imported to countries that still permit it, but the G7 intend that service providers may only facilitate the same if the oil price is at or below the cap. 

The initial price cap itself has not yet been set, but it will be publicly communicated when it has been.

The price cap policy is to be implemented through a system of recordkeeping and attestation, where the parties at the various stages of the supply chain can either clearly evidence the capped oil price that applies to a shipment, or otherwise can safely rely on evidence of that capped price provided by another party. 

2. OFAC’s preliminary guidance on implementation of a maritime services policy and related price exception for seaborne Russian oil

On September 9, the Office of Foreign Assets Control (OFAC), which administers and enforces US sanctions, announced related guidance that supplements the G7 statement. It indicates that the prohibition of maritime services related to Russian oil would take effect:

(i)  on December 5, with respect to crude oil; and

(ii)  on February 5, 2023, with respect to petroleum products.

However, the guidance confirms that the prohibition on maritime services does not apply if the transported oil product price is at, or below, the cap.

2.1 The maritime transportation services ban, and its exemption

The guidance then elaborates an intention to issue a determination under Presidential Executive Order 14071, that would:

(a) permit the exportation, re-exportation, sale or supply, directly or indirectly, from the United States or by a United States person, wherever located, of services related to the maritime transportation of seaborne Russian oil, if it is purchased at or below the price cap; and

(b) by the same token, ban those services if the oil is purchased at a price above the cap.

Incidentally, it should be understood that this does not in any way compromise the existing ban on imports of Russian oil into the United States. The guidance contemplates shipments of Russian oil to third countries.

2.2 Recordkeeping and attestation

The guidance also sets out in more detail how the recordkeeping and attestation system will work. 

Parties having direct access to price information in the normal course, such as commodities brokers and refiners, should retain and share, as necessary, documentation showing the Russian oil was purchased at or below the price cap. This might include invoices, contracts, receipts, proof of accounts payable, etc.

Other parties who may sometimes have direct access to price information should also request, retain and share the associated documentation when they can.

Where direct access to price information is not available to a party – this might be an insurer, insurance broker or P&I club – it should seek and retain a customer attestation that it will not purchase seaborne Russian oil above the price cap. For insurers, attestations are not required for each shipment, but can be obtained in respect of the entire period of insurance coverage. The attestation can, for example, be obtained at policy inception, during the renewal process or as part of a policy update. 

This process is intended to create a ‘safe harbour’ for maritime shipment service providers, protecting them from sanctions liability when they inadvertently facilitate the transportation of Russian oil above the price cap, because associated documentation has been falsified by other parties. A service provider without direct access to price information, that reasonably relies upon a customer attestation and otherwise acts in good faith, should not be held liable for price cap policy breaches caused by other participants in the shipment process.

OFAC expects that these attestations and documentation should be retained for at least five years.

3. Secondary sanctions on those who breach the price cap?

The OFAC guidance refers to maritime transportation services provided from the United States or by a US person related to shipments of Russian oil. We would naturally assume that other members of G7 and the broader coalition that will support the Russian oil price cap will impose similar bans and permissions on their nationals and business conducted in their territories. This, though, could well mean that countries such as India and China do not directly participate in the Russian oil price cap.

Possibly responding to this, on 20 September, two US senators, Chris Van Hollen and Pat Toomey, proposed a framework for legislation that would impose secondary sanctions on:

- non-US entities that facilitate Russian oil transactions above the price cap. These might include insurers, reinsurers, brokers, trade financiers, etc.; and

- non-US financial institutions that are determined by the US President to have knowingly engaged in a relevant transaction or series of transactions, in a country where importation of Russian oil, coal, gas, etc has substantially increased above pre-Ukraine invasion levels.

Secondary sanctions are basically measures that the US authorities take against non-US persons who breach their sanctions policies. As those authorities often lack the legal ability to levy fines against non-US persons, they instead react by excluding the non-US person from the US economy. That might take the form of denial of export/import rights, exclusion from the US financial system, denial of rights of senior management to travel or remain in the US, etc.

While the details are currently limited, if this legislation is enforced it seems the OFAC maritime transportation services policy for Russian oil would assume a global reach and application.

We will continue to monitor developments.

For more information, or for staff training, advice, due diligence or representation in disputes relating to sanctions, please get in touch.