On December 2, 2022, the Department of the Treasury (“Treasury”) issued a Determination pursuant to Executive Order 14071 of April 6, 2022 imposing a price cap of $60 per barrel on seaborne crude oil of Russian origin, effective December 5, 2022. Thus, companies can purchase and/or provide services related to the maritime transport of Russian-origin oil only if the oil is traded at or below $60 per barrel; otherwise, they may be subject to sanctions by Treasury’s Office of Foreign Assets Control (“OFAC”) for offering prohibited services to Russia. The prohibited services related to the maritime transport of crude oil of Russian origin were outlined earlier in a Determination dated November 21, 2022 that was also issued pursuant to Executive Order 14071 (see Update of November 29, 2022). The price cap and its policy structure will be imposed by the European Union, the G7, and Australia—collectively the “Price Cap Coalition”—as well.
Treasury anticipates the price cap to encourage countries—particularly low- and medium-income countries—to use the price cap as leverage to bargain for steeper discounts on Russian oil, thus fomenting greater discounted Russian oil on the global energy market. In doing so, the price cap aims to limit Russia’s “most important source of revenue,” which, in turn, will constrain Russia’s ability to fund its ongoing invasion of Ukraine.
Further, to deter purchasers from buying seaborne crude oil of Russian origin above $60 per barrel, Treasury affirmed its commitment to the Price Cap Coalition’s plans to ban more services related to the maritime transport of seaborne crude oil of Russian origin next week, including a ban on maritime insurance and trade finance. The additional ban on maritime insurance is particularly noteworthy as companies based in the G7 control approximately 90% of the market for relevant maritime insurance products and reinsurance, and are less expensive than their non-G7 counterparts. Treasury also confirmed the additional bans will apply to Russian-origin petroleum products beginning on February 5, 2023—the date when the price cap for Russian-origin petroleum products will be announced.
The price cap also clarifies the Preliminary Guidance published in September 2022 by OFAC, which notably extended service providers with a “safe harbor” from strict liability for breach of sanctions if Treasury concluded service providers inadvertently purchased Russian oil above the price cap due to falsified or erroneous records provided by persons who act in bad faith or made material misrepresentations. The “safe harbor,” though, is only for persons who comply with the price cap program’s recordkeeping and attestation process to demonstrate or confirm that seaborne Russian oil had been purchased at or below the price cap (see Update of September 19, 2022).