On December 30, 2022, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) published preliminary guidance on how the United States will implement a price cap policy on petroleum products of Russian origin. OFAC notes that with this preliminary guidance the agency will likely “take a similar approach for Russian petroleum products as it has done for crude oil of Russian Federation origin.” See Update of December 5, 2022. To implement the price cap policy for Russian petroleum products, the Secretary of the Treasury will soon issue a determination pursuant to Executive Order 14071, as it did to implement the price cap policy for Russian crude oil. It also intends to publish a final version of this guidance document before February 5, 2023, when the price cap policy on petroleum products is scheduled to take effect.

In this preliminary guidance, OFAC addresses key questions regarding what constitutes petroleum products of Russian origin. For instance, OFAC clarified that petroleum products incidentally combined with a de minimis amount of Russian petroleum products will not have to be reclassified as petroleum products “of Russian Federation origin.” OFAC also confirmed that U.S. persons may reasonably rely upon a certificate of origin when assessing whether petroleum products are of Russian origin, although OFAC continues to emphasize U.S. persons should “exercise caution” about such documents, especially if there is reason to believe a certificate has been falsified or is otherwise erroneous.

OFAC also provides ground rules for when the petroleum price cap applies. For example, the price cap applies from the embarkment of maritime transport of Russian petroleum products (e.g., when a Russian entity sells Russian petroleum products and initiates the maritime transport of such goods) through the first landed sale in a jurisdiction other than Russia. Given this parameter, therefore, the price cap policy does not apply to further onshore sales of the Russian petroleum products once they have cleared customs in a jurisdiction other than Russia. Still, if Russian petroleum products have cleared customs in a jurisdiction other than Russia but are then not substantially transformed and subsequently sent back out onto the water, the Russian petroleum products have, in essence, benefitted from the evasive practice of transshipment, which retriggers the application of the price cap. The guidance offers several examples of what operations would not be considered to be substantial transformation.

When the petroleum price cap is implemented, OFAC anticipates amending Russia General Licenses 56 and 57 to extend these limited authorizations to cover Russian petroleum products. Further, it is expected that Russian petroleum products loaded onto a vessel after February 5, 2023 and unloaded before April 1, 2023 will be exempt from the price cap policy (see OFAC FAQ 1109).