On March 8, President Biden signed a broad and sweeping Executive Order ("EO") imposing new sanctions on the Russian energy sector:

  • The EO bans new investment in the energy sector in the Russian Federation by a United States person, wherever located;
  • The EO bans the importation into the United States of the following products of Russian Federation origin: crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products and;
  • The EO bans any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited if performed by a United States person or within the United States.

General License authorizes limited transactions: Simultaneous with the signing of the EO, the U.S. Treasury's Office of Foreign Assets Control ("OFAC") issued Russia related General License 16 which provides that transactions prohibited by the March 8 Executive Order that are ordinarily incident and necessary to the importation into the United States of crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products pursuant to written contracts or written agreements entered into prior to March 8, 2022 are authorized through 12:01 a.m. eastern daylight time on April 22, 2022.1

At the same time, OFAC issued several new FAQ's clarifying the following points with respect to the March 8 EO:

  • Caspian Pipeline Consortium: The EO does not prohibit dealing in crude oil of the Caspian Pipeline Consortium (CPC) given that distribution systems such as those within the CPC can segregate various sources of crude oil, allowing crude oil that is not of Russian Federation origin to be marketed and loaded separately (FAQ 1,020)
  • Russian Origin Defined: "Russian Federation Origin" as used in the EO refers to "goods produced, manufactured, extracted, or processed in the Russian Federation, excluding any Russian Federation origin good that has been incorporated or substantially transformed into a foreign-made product." (FAQ 1,019)
  • New Investment Defined: "[N]ew investment in the energy sector in the Russian Federation" refers to "a transaction that constitutes a commitment or contribution of funds or other assets for, or a loan or other extension of credit to, new energy sector activities (not including maintenance or repair) located or occurring in the Russian Federation beginning on or after March 8, 2022 (FAQ 1,019)
  • Impact on Foreign Persons: Non-U.S. persons are not subject to the U.S. sanctions if they import to non-U.S. jurisdictions products of Russian Federation origin banned pursuant to the EO so long as the import does not involve a sanctioned person or an otherwise prohibited transaction (FAQ 1,018) Note, in particular, that U.S. persons cannot engage in sanctioned transactions through a foreign person, even if the foreign person is not itself subject to sanctions.
  • Impact on General License 8A: General License 8A which authorizes certain transactions "related to energy" involving specified Russian financial institutions remains in effect until June 24, 2022, but does not authorize any transactions prohibited by the March 8 EO (FAQ 1, 017)
  • Impact on Shipments En Route to U.S.: U.S. persons who have a shipment of a product or products covered by the EO en route to the U.S. that was contracted prior to March 8, 2022 can find new buyers, re-direct the shipments to countries other than the U.S., or import the product pursuant to GL 16 (FAQ 1, 016)
  • No New Contracts: GL 16 authorizes all transactions prohibited by the March 8 EO that are ordinarily incident and necessary to the importation of the covered products, but does not authorize entry into new contracts. Additionally, the EO does not prohibit the unwinding of contracts in order to comply with the EO; nor does it prohibit U.S. persons from engaging in transactions to sell or re-direct shipments that were laden on or after March 8 and previously destined for the U.S. (FAQ 1,015)
  • Other Forms of Energy: The EO only prohibits the import of products listed in the EO and does not prohibit the import of other forms of energy of Russian Federation origin and does not prohibit imports of non-Russian Federation origin, even if such items transit through or depart from the Russian Federation. (FAQ 1,014).2

Given the complexity of these regulations and the severe penalties for violating them (which can include civil and criminal penalties exceeding several million dollars), U.S. businesses with any involvement in the Russian energy sector should consult counsel to ensure compliance. The new U.S. sanctions are part of a broad matrix of Russian sanctions imposed by the U.S. and its allies. Businesses should consult qualified local counsel to assess the impact of foreign sanctions on transactions involving the Russian energy sector, even if the transactions are not subject to sanctions under U.S. law.

In response to the March 8 Executive Order, the Kremlin accused the United States of waging "economic war" on Russia and said that it was considering its response. U.S. businesses operating in Russia should also consult with qualified Russian counsel to ensure compliance with Russian law.

Footnotes

1. Issuance of new Russia-related Executive Order and related General License 16; Publication of new and amended Frequently Asked Questions | U.S. Department of the Treasury

2. Issuance of new Russia-related Executive Order and related General License 16; Publication of new and amended Frequently Asked Questions | U.S. Department of the Treasury

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