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Economic Sanctions and the Russian Oil Price Cap Policy

Simply Speaking
January 30, 2023


As the Russia-Ukraine war approaches its one-year anniversary with no end in sight, U.S., EU and UK authorities, among other nations, continue to exert calculated but sustained pressure on the Russian Federation in the form of economic sanctions.

In this month’s edition of Simply Speaking, we discuss the basics of economic sanctions, and the implementation of the Russian oil “price cap policy” over Russian-origin crude oil and petroleum products.

What are Economic Sanctions?

Economic sanctions are imposed by governmental authorities in order to advance foreign policy and national security goals. In the United States, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) plays a principal role in administering and enforcing many U.S. sanctions programs.

Sanctions can be comprehensive, prohibiting activities with an entire country (like Iran or Cuba), or more targeted, restricting transactions with specific persons or entities and imposing an asset freeze to block targeted property of those persons.

Depending on the scope of the program, sanctions can apply to both U.S. and non-U.S. persons.

The penalties for violating sanctions can be substantial and can include both civil and criminal penalties. In addition, civil enforcement operates on a strict liability basis, meaning that OFAC need not make a finding of fault or negligence to enforce violations of the sanctions programs it administers.

The Russian Foreign Harmful Activities Sanctions Program and The Price Cap Policy

The Russian oil price cap policy was initiated by the G7 in September 2022. It has been implemented by a coalition of countries including the G7 member states, Australia and the EU.

The price cap policy has been implemented as a form of economic sanctions, under authority delegated by Executive Order (E.O.) 14071 issued on April 6, 2022. That order imposes a broad prohibition on the export, reexport, sale or supply, directly or indirectly, from the United States or by a U.S. person, to any person in the Russian Federation, of “any category of services” that OFAC determines to be prohibited.

The sanctions are described as a “price cap policy” because prohibited services may be offered if they are in compliance with the exception and other applicable law, that permits such services if Russian-origin crude oil and petroleum products are purchased at or below a price cap established by the implementing coalition of countries. The price cap is subject to periodic review and, in the case of crude oil, has been set at $60 per barrel.

Prohibited Covered Services

The categories of covered services (“Covered Services”) that fall within the price cap policy are: 

  • Trading/commodities brokering;
  • Financing;
  • Shipping;
  • Insurance, including reinsurance and protection and indemnity;
  • Flagging; and
  • Customs Brokering.

As a result, the export, reexport, sale, or supply, directly or indirectly, from the United States, or by a U.S. person, wherever located, of any of the Covered Services to any person in the Russian Federation are prohibited, unless they are in compliance with the relevant price cap then in effect.

Date to Remember

While the ban already took effect with respect to maritime transportation of crude oil on December 5, 2022, we are now days away from the February 5, 2023 date that OFAC has established with respect to the ban on maritime transportation of petroleum products.

On December 30, 2022, OFAC advised that it expects to take a similar approach to implementation of the petroleum products price cap as it did to implement the prohibitions on Russian crude oil.

Demonstrating Compliance with the Price Cap Policy

A safe harbor from OFAC enforcement exists for service providers who are engaged in Covered Services that comply in good faith with a recordkeeping and attestation process, and retain relevant records for five years, to demonstrate or confirm that Russian crude oil or petroleum products have been purchased at or below the relevant price cap.

OFAC has published specific guidance for service providers depending on those persons’ access to price information, by identifying Tier 1, Tier 2 and Tier 3 actors. The guidance applicable to ship/vessel agents, shipowners/carries, insurers/reinsurers/P&I clubs, flagging registries, and other actors, will vary depending on the facts and circumstances.

Depending on the type of service rendered and the party’s role in the industry (as either a Tier 1, Tier 2 or Tier 3 actor), parties may need to update the terms and conditions of their contracts and invoices, revise their due diligence questionnaires or other policies and procedures, including the terms of their lending or financing arrangements, and provide additional training or guidance to their staff.

What is “Financing” in this Context?

OFAC has published guidance that provides that “financing” services in this context include both “transaction-specific trade finance related to the maritime transport of Russian oil” as well as “non-transaction specific financing.”

For transaction-specific financing, OFAC has instructed that financial institutions should seek trade documentation reflecting transaction information showing the origin of articles, date, and unit price. Alternatively, if such documentation is not practicable in the ordinary course of business, financial institutions must obtain and retain signed attestations from their downstream customers or subcontractors that the Russian oil was purchased at or below the relevant price cap to be afforded the safe harbor.

With respect to general financing, OFAC has instructed that financial institutions should implement risk-based policies and procedures within sanctions compliance programs to confirm that the price of Russian oil does not exceed the relevant price cap; and must obtain and retain signed attestations from their downstream customers or subcontractors that for the service being provided, the Russian oil was or will be purchased at or below the relevant price cap to be afforded the safe harbor.


Please contact any member of S&K’s Maritime Practice Team or Economic Sanctions and Cross-Border Regulatory Practice Group.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


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