On Thursday, October 12, 2023, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) imposed blocking sanctions on two oil tankers and their registered owners for transporting Russia-origin crude oil sold above the “price cap.” The price cap, set in December 2022 by a coalition of the G7, the European Union, and Australia, generally forbids providing certain services relating to the maritime transport of Russia-origin crude oil sold above $60 per barrel.¹ This is the first time that the US has imposed sanctions in connection with the price cap rules – and also came with a suggestion that the US would continue to utilize this authority as warranted in the future. As the US Treasury Secretary emphasized, “to the extent Western services are used, we [the US] mean business about abiding by the [price] cap.”

The blocked vessels are Yasa Golden Bosphorus and SCF Primorye, and their sanctioned owners are, respectively, Ice Pearl Navigation Corp, a Turkey-based entity, and Lumber Marine SA, a UAE-based entity. As a result of the new sanctions, the property and interests in property within US jurisdiction of these entities and the named vessels are blocked (frozen), and US persons are prohibited from doing business with them. Additionally, pursuant to OFAC’s 50 Percent Rule, all entities owned 50%-or-greater by the newly designated entities, directly or indirectly, are also blocked.²

Compliance advisory

On October 12, 2023, the price cap coalition issued a statement to underscore the risks of violating price cap rules and published an advisory for the maritime oil industry and related sectors. The advisory outlines best practices that industry stakeholders can adopt to reduce exposure to potential risks in maritime trade of oil and petroleum products. The suggested recommendations are:  (i) require appropriately capitalized P&I insurance; (ii) receive classification from a reputable organization; (iii) use the Automatic Identification System (AIS) tracking throughout voyages; (iv) monitor ship-to-ship transfers of cargo at sea, especially in areas at higher risk for illicit trading activity or AIS manipulation; (v) request associated shipping and ancillary costs to ensure the costs are not inflated to conceal purchase of Russia-origin oil above the price cap; (vi) undertake appropriate due diligence, and (vii) report ships that trigger concern to the relevant authorities.

Sanctions implications

This first use of the price cap sanctions indicates that the US remains vigilant in monitoring service companies and vessels participating in the trade of Russia-origin oil. The fact that these sanctions were imposed against non-Russian entities is yet another recent example of the US imposing sanctions on third-country individuals and entities as part of the US Russia sanctions program. These new sanctions are also consistent with the overall intensification of US sanctions targeting Russia, along with a major package of sanctions designations in mid-September that were among the first examples of the US implementing several of its other Russia-related sanctions authorities. 

Dentons will continue to monitor these developments and provide updates.

1. To assess the origin of the oil, US persons may reasonably rely upon a certificate of origin but should exercise caution if they have reason to believe such certificate has been falsified or is otherwise erroneous.  Crude oil transiting through Russia that is loaded and certified with a certificate of origin of non-Russia origin (e.g., Kazakh-origin oil transported through the Caspian Pipeline Consortium) is not considered of Russia-origin.  Oil of Russia origin that undergoes “substantial transformation” in a jurisdiction other than Russia is not considered of Russia-origin.↩
2. Certain limited safety and environmental transactions involving the blocked tankers and their owners (and their 50%-or-greater owned affiliates) are authorized through January 8, 2024 (see General License 73).↩