On 21 June 2024, the Office of Financial Sanctions Implementation (OFSI) of HM Treasury, the authority for the implementation of financial sanctions in the UK, published a new UK Maritime Service Ban and Oil Price Cap Industry Guidance (the “Guidance”).
As OFSI said, the new guidance is targeted at “Russia’s most lucrative revenue stream – the sale of oil and oil products, such as petrol and diesel – whilst also aiming to ensure that there is a continued flow of these products to third countries.”
For context, the UK has already banned the import, maritime transportation and provision of associated services that facilitate the maritime transportation of both Russian oil and oil products from either 5 December 2022 or 5 February 2023. To make UK services still available to third country importers and exporters, the UK introduced a coordinated price cap exception to the maritime transportation and associated services ban.
The new Maritime Service Ban
In general, the Maritime Service Ban contains the two sections as below:
- Maritime Transportation
- Ban All persons within the territory and territorial sea of the UK and all UK persons, wherever they are in the world, are prohibited from supplying or delivering oil and oil products (which originate in Russia or are consigned from Russia) by ship from a place in Russia to a third country, or from one third country to another third country.
- Associated Services Ban
Persons in the UK and UK persons anywhere in the world are prohibited from providing financial services, funds, or brokering services in pursuance of, or in connection with, an arrangement whose object or effect is the supply or delivery of oil and oil products by ship, from a place in Russia to a third country, or from one third country to another third country. However, there is an exemption for trading in derivatives and futures and related derivative brokering services.
Nevertheless, the provision of bunkering services to a ship carrying Russian-origin oil or oil products is not in scope of the UK maritime services ban or price cap.
Exception and Licensing
Despite the sanctions above, OFSI provides a “price cap” exception to ensure the continued flow of oil onto the global market.
This price cap exception permits the supply or delivery of Russian oil and oil products by ship, as well as provision of associated services, only where they have been purchased or sold at or below a corresponding set price, or “cap’” for that oil or oil products. However, this exception is not applicable to the import of Russian oil and oil products into the UK.
The “oil price cap” exception has been implemented by means of general licences. However, where the price is above the cap, you may be able to obtain a specific licence to allow the activity to take place without breaching trade sanctions.
In addition to the “price cap” exception, there are two other exceptions to the Maritime Services Ban:
- An emergency, which is likely to have a serious and significant impact on human health or safety, infrastructure, or the environment;
- Where the oil and oil products are only being loaded in, departing from, or transiting through Russia.
Compliance and Enforcement
If anyone breaches the sanctions, OFSI will assess the facts to decide on an outcome. The prohibition is enforced by OFSI through a robust enforcement regime, with HMRC and the National Crime Agency jointly considering cases which may be appropriate for criminal prosecution.
Consequences for a breach range from:
- A warning;
- Be referred to regulated professionals or bodies;
- Information pertaining to a breach is published;
- Monetary penalty (the permitted maximum is £1,000,000); and
- Be referred to law enforcement agencies for criminal investigation and potential prosecution.
EU sanctions on Russian LNG
These new UK sanctions will certainly impact the transaction for Russian energy business, with coordination with the EU and other UK’s partners. Among others, as mentioned in the Guidance, the EU’s measures against Russian oil and oil products are currently in force, following wind-down periods for certain transactions for oil until 5 December 2022 and for oil products until 5 February 2023.
In addition, on 20 June 2024, the EU published its 14th package of sanctions against Russia (see our blog here), which contains bans on reloading services on its territory for the purposes of transshipment operations where such services are used to tranship Russian liquefied natural gas (LNG) and to ancillary services related to such transshipment. EU also prohibits new investments and the provision of goods, technology and services for the completion of Russian LNG projects, Arctic LNG 2 and Murmansk LNG.
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The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.
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