presidential decree targeting the Russian energy sector has an immediate effect on the maritime industry | Knowledge


Last week, the White House launched new rounds of sanctions against the Russian Federation in response to its continued efforts to undermine Ukraine’s sovereignty and territorial integrity. This Holland & Knight alert focuses on new President Joe Biden Executive Decree (EO) targeting the Russian energy sector published on March 8, 2022. While the energy sector of the economy of the Russian Federation itself is not subject to comprehensive sanctions, the EO imposes bans or restrictions on certain energy-related transactions under multiple sanctioning authorities. Overall, the EO imposes three main restrictions that have a significant impact on the energy and marine sectors.

First, the OE prohibits the import of the following products of Russian origin:

  • crude oil
  • oil
  • petroleum fuels, oils and products of their distillation
  • liquefied natural gas
  • coal
  • coal products

Second, the OE prohibits “new” US investment in the Russian energy sector. Guidelines issued by the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury broadly define “new investments” to include the contribution of funds, assets, loans, or other extensions of credit for a range of activities in Russia or related to Russia, including the transport of these energy products. However, the EO does not prohibit transactions such as the unwinding of contracts or other commercial activities by US persons to comply with its import ban.

In addition, OFAC has imposed extensive sanctions on persons who operate or have operated in the financial services sector of the economy of the Russian Federation. To limit the extent to which these financial services industry sanctions can impede energy-related transactions, OFAC has released General License (GL) 8A for Russiaauthorizing US persons to transact energy-related transactions involving the sanctioned Russian financial institutions identified in GL 8A.

Energy-related transactions permitted in GL 8A include payments related to a variety of upstream and downstream activities, including extraction, production, refining, liquefaction, gasification, regasification, conversion , enrichment, manufacture, transport or purchase of energy for import from Russia. Federation to countries other than the United States or for export to the Russian Federation, as well as financing, loading or unloading related to these processes. However, transactions related to new investments in the energy sector in the Russian Federation are not permitted under GL 8A.

Third, the OE prohibits U.S. Persons from financing, facilitating, approving, or underwriting any of the above prohibited transactions (eg, imports or “new” investments).

In parallel, OFAC has also published GL 16allowing activities now prohibited to be phased out until 12:01 a.m. EST on April 22, 2022. Additionally, the EO does not prohibit U.S. Persons from engaging in transactions to sell or redirect shipments that have been loaded on or after March 8, 2022. , and previously destined for the United States.

Immediate effect on the maritime sector

These types of sanctions have an immediate impact on the international shipping industry in terms of operations, contracts and insurance. In authorizing the tapering and redirection of cargoes, OFAC and the White House apparently contemplated the wave of contractual issues that arise as shipowners, charterers, operators, suppliers, buyers, insurers (P&I clubs, market of reinsurance, etc.) bunkering companies and financial institutions assess risk and stakeholders seek to sell or redirect shipments. This raises an immediate question of who the potential customers are for these Russian energy products, and while some transactions are permitted, what risk – including financial and reputational – will remain after the liquidation period expires.

Affected stakeholders will seek ways to review contractual obligations, divert shipments, and assess exemptions or exceptions to avoid breach of contract claims. As mentioned in a previous Holland & Knight alert (see “US Sanctions on Russia: Impact on Shipping Businesses and Contractual Considerations”, March 7, 2022), these analyzes will focus on the bespoke language in the respective contracts (e.g. possible options under “Princes Restriction” or force majeure clauses, although parties should exercise caution as to whether a clause applies to the current situation). The power of a captain to deny entry into a port has recently been discussed in the United States, and it is notable but not determinative. In addition, counterparties aware of the risk of sanctions and public opinion may refuse to participate in the transportation and sale of Russian energy products, even when such transactions are permitted under OFAC’s liquidation licenses.

Ports could also be impacted. In terms of compliance, port operators will likely need to assess whether they would breach the newly imposed sanctions if they assisted in the docking and unloading of products of Russian origin. If a port denies entry or refuses to discharge cargo, holding and demurrage clauses will be affected and further liability issues may arise.

Adding to the complexity of how EO will be applied is the verification and screening required to assess what is an “origin Russian” product, particularly if the products have been mixed or blended. Such considerations make due diligence efforts and re-verification of bills of lading and cargo related documents all the more important. The U.S. Coast Guard and U.S. Customs and Border Protection did not provide any guidance on restrictions regarding entry of vessels carrying Russian-origin products, but such involvement could include enhanced inspections which, in their view. turn, could cause delays. For industry stakeholders entering into new agreements or revising existing obligations, there are safeguards that can be used to accommodate this likely scenario.

Most recent legislation

On March 9, 2022, the United States House of Representatives overwhelmingly approved the legislation (HR 6968) which would prohibit the import of all products from the Russian Federation classified under Chapter 27 of the harmonized customs tariff. Prohibited imports include, among others, liquefied natural gas, oil and coal. While a related Senate bill is still being drafted, the House bill allows a 45-day window after the date of enactment to import otherwise prohibited products, including shipping contracts , permits the importation of certain products into the United States if the importation of such products is pursuant to a written contract or agreement entered into prior to the date of enactment of the proposed legislation. The broad support for this legislation likely helped influence President Biden’s decision to impose sanctions under the executive order.

Other collateral consequences

This EO’s ban on certain products of Russian origin raises immediate questions about securing US oil supplies. Several considerations have reportedly been advanced by U.S. lawmakers and regulators, and some have even raised imports from countries currently under various U.S. sanctions, such as Venezuela and Iran. If this were to progress, industry stakeholders would need to carefully consider what would be permitted under a new EO or blanket license.

Another consideration is the role that the United States Strategic Petroleum Reserve (SPR), the world’s largest source of emergency crude oil, could play. Federally held SPR oil inventories were designed to hold up to 714 million barrels of crude oil in underground salt caverns at four storage sites along the Gulf of Mexico. Typically, SPR releases of crude oil occur under four conditions: emergency drawdowns, test sales, swap agreements, and non-emergency sales. In response to Russia’s invasion of Ukraine on March 1, 2022, the The US Department of Energy is committed to release 30 million barrels of crude oil from the SPR to ensure adequate oil supply. This latest release pledge is the first emergency levy since 2011, when members of the International Energy Agency (IEA) collectively released 60 million barrels in response to the disruptions in Libya. In November 2021, the The White House announced that the Department of Energy made available 50 million barrels of oil from the SPR to “lower prices for Americans and address the mismatch between demand emerging from the pandemic and supply.”

Changes in oil markets and business patterns could also increase tanker availability and Jones Act concerns. In July and August 2011, the The Jones Act has been lifted during a crisis in Libya to allow foreign tankers to ship oil from the United States Additional waivers have been requested, and in some cases granted, in connection with natural disasters affecting fuel supplies. A previous Holland & Knight alert provided insight into how Jones Act requirements can be waived to allow foreign-flagged vessels to engage in coastal trade in generally rare circumstances in the “interest of national defense.” “. (See “Jones Act Waivers Following Natural Disasters,” September 1, 2021.)

Conclusions and Considerations

Energy and marine sector stakeholders should undertake a thorough review of their current operations, charter parties and supply contracts to assess how their business operations are affected by the new EO. Such a review should include a reselection and due diligence check related to the origin. cargo that could be from Russia, including mixed or mixed with products of Russian origin, since OFAC did not provide clarification on what is actually considered “of Russian origin”. Insurers should confirm the same with their member shipowners and charterers, although they may already be taking such action.

The information in this alert is intended for the general education and knowledge of our readers. It is not intended to be and should not be relied upon as the sole source of information when analyzing and resolving a legal issue, and it should not substitute for legal advice, which is based on a specific factual analysis. In addition, the laws of each jurisdiction are different and constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular factual situation, you are encouraged to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.


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