On December 3, 2022, G7 members formally set the highly anticipated price cap on Russian oil at 60 USD per barrel. This price cap applies to crude oil, petroleum oils, and oils obtained from bituminous minerals which originate in or are exported from Russia. Below we summarize (1) some of the key aspects of the G7’s price cap, and (2) the measures taken to implement the price cap by the EU,US, UK, Japan and Canada.
Key aspects of the G7 price cap include:
- The price cap establishes a framework for Russian seaborne crude oil and petroleum products to be exported to third countries under a capped price to achieve three objectives: (i) maintain a reliable supply of seaborne Russian crude oil and petroleum products to the global market; (ii) reduce upward pressure on energy prices; and (iii) reduce Russia’s revenues.
- The level of the cap was established in close cooperation with the Price Cap Coalition and became applicable on December 5, 2022.
- The decision sets the level at which the exemption apply, and introduces a transition period of 45 days for vessels carrying crude oil originating in Russia, purchased and loaded onto the vessel prior to December 5, 2022 and unloaded at the final port of destination prior to January 19, 2023. As the price cap may be periodically reviewed to adapt to the market situation, the decision also sets a transition period of 90 days after every change in the price cap, to ensure coherent implementation of the price cap by all operators.
- The functioning of the price cap mechanism will be reviewed every two months to respond to developments in the market, and will be set at least 5% below the average market price for Russian oil and petroleum products, calculated on the basis of data provided by the International Energy Agency.
On October 6, 2022, the Council of the European Union (“the Council”) adopted a decision prohibiting the maritime transport of Russian crude oil (as of December 5, 2022) and petroleum products (as of February 5, 2023) to third countries, and the related provision of technical assistance, brokering services or financing or financial assistance. The Council decision also introduced an exemption from the above-mentioned prohibitions for crude oil or petroleum products which originate in or are exported from Russia, and are purchased at or below a pre-established price cap agreed by the Price Cap Coalition, the price cap exemption.
The Council also introduced an “emergency clause” which allows the transport of oil beyond the price cap or the provision of technical assistance, brokering services or financing or financial assistance related to the transport, when these are necessary for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment, or as a response to natural disasters.
In addition to the legislation introduced by the EU, the European Commission published an FAQ for guidance on the Oil Price Cap.
US Specific Updates
The United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued this fact sheet and this statement following the announcement of the price cap. OFAC also issued this determination setting the price cap to USD 60 per barrel. This comes just a few weeks after OFAC issued a separate determination on the price cap along with this guidance on the implementation of the price cap policy. Our previous blog post on these items can be found here. OFAC also issued preliminary guidance in September 2022, which we’ve blogged on here.
UK Specific Updates
The UK has announced a cap on seaborne Russian oil at USD 60, which came into force on 5 December 2022. It is in line with the EU restrictions discussed above, including in relation to the transition period for which there is a General Licence.
The cap is implemented in conjunction with the UK’s ban on the maritime supply and delivery of Russian oil and oil products to a third country or from one third country to another third country (which came into effect on 5 December 2022 for oil and will come into effect on 5 February 2022 for oil products). It also prohibits the provision of related financial services, funds and brokering services. Exemptions to both prohibitions are available under a General Licence, which applies to oil and oil products sold under the price cap.
Further General Licences are available in relation to certain correspondent banking and payment processing and to certain listed projects and countries.
The UK Government has published guidance in relation to the price cap.
Japan Specific Updates
The Japanese Government announced that there will be:
- An import ban in relation to crude oil that is of Russian origin, and which is sold at a higher price than the designated capped price. Imports of such oil will require a license by the Minister of the Economy, Trade and Industry.
- A service ban in relation to crude oil that is of Russian origin, and which is sold at a higher price than the designated capped price. Anyone wanting to offer loan contracts, guarantee contracts, set off debts contracts or provide services designated by the MOF or METI notice should obtain a license from the authority.
Please note that these measures do not apply to crude oil generated by the “Sakhalin 2” project.
Canada Specific Updates
Canada has amended its sanctions measures in response to the G7 oil cap to prohibit certain marine transportation services. Specifically, the amendments prohibit persons in Canada and Canadians outside Canada to provide specified marine transportation services (i.e. financing, shipping, re/insurance, customs brokering, flagging, protection/indemnity, trading and commodities brokering), including ship-to-ship transfers of specified petroleum and petroleum products, if those products are:
- exported from Russia or originate in Russia;
- are purchased above USD 60; and
- if the service relates to sea, costal or inland water transport generally, or to passenger or freight transport industries as defined by Division 50 of the International Standard Industrial Classification of All Economic Activities, Revision 4, published by the United Nations in 2008.
Canada’s Russian oil and petroleum product import ban, implemented on March 10, 2022, remains in effect.