OFAC Issues Preliminary Guidance on Russian Oil Price Cap
The Office of Foreign Assets Control issued preliminary guidance on the price cap for seaborne Russian oil and related maritime services policy. The G7 confirmed its joint intention for the cap at the Sept. 2 meeting of finance ministers (see 2209020034).
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The policy for crude oil will take effect Dec. 5 and for other petroleum products Feb. 5. The coalition hasn't yet set price points for oil and petroleum products. The U.S. will implement policies on "a broad range of services related to the maritime transportation of Russian Federation origin crude oil and petroleum products," according to the guidance. The policy is constructed as a ban on services for Russian oil brought above a price cap to be established. The cap is designed to maintain a reliable supply of seaborne Russian oil to the global market, reduce upward pressure on energy prices, and reduce oil revenues for Russia, said OFAC.
Each jurisdiction will implement and enforce the cap on its own in coordination. OFAC anticipates issuing a determination in the near future that will permit the exportation, reexportation, sale, or supply, directly or indirectly, of services related to the maritime transportation of seaborne Russian oil, if the seaborne Russian oil is purchased at or below the price cap and prohibit such services if the seaborne Russian oil is purchased above the price cap. OFAC anticipates publishing guidance on services subject to the maritime services policy. This determination will not authorize the importation of Russian oil into the U.S., prohibited in March by executive order 14066.
OFAC said compliance will depend on the level of price information service suppliers encounter in the usual course of business. "The price exception will rely on a recordkeeping and attestation process that allows each party in the supply chain to demonstrate that oil has been purchased at or below the price cap," said OFAC. The process will require companies to expand standard due diligence, but should be similar to practices already in place for sanctions risk, including the risk of violation of the maritime services policy through evasion.
OFAC said the recordkeeping and attestation process is designed to create a “safe harbor” for service providers from liability for breach of sanctions in cases where they have dealt in the purchase of seaborne Russian oil above the price cap. Service providers without direct access to price information won't be held liable for potential sanctions breaches because of those acting in bad faith. OFAC said it will publish guidance for industry alongside the determination that will implement the maritime services policy and price exception.
OFAC will publish information specifically on red flags of evasion in the future. In the meantime, OFAC said its May 2020 Guidance to Address Illicit Shipping and Sanctions Evasion Practices is applicable to the services ban. OFAC recommends providers of maritime services be vigilant about the red flags such as reluctance to provide requested price information, unusually favorable payment terms, inflated costs, or insistence on using opaque payment mechanisms, manipulated shipping documentation, newly formed companies or intermediaries, and abnormal shipping routes.