US Targets Russian Energy Sector With Expanded Sanctions, New Designations

The U.S. announced a host of new sanctions against Russia’s energy sector last week, targeting major Russian oil producers, oil service providers and insurance companies, as well as vessels and traders moving Russian oil as part of the country’s shadow fleet. The Office of Foreign Assets Control also issued two new determinations that authorize sanctions against any person or entity with ties to Russia’s energy sector and that block the provision of U.S. petroleum services to parties in Russia, and it announced it will soon be ending a general license that had authorized certain Russia-related energy payments.

The new sanctions are the “most significant sanctions yet” against the country’s energy sector, which is the Kremlin’s largest revenue source, a senior administration official said during a Jan. 9 call with reporters. “If they're sufficiently enforced, they'll undermine Russia's revenues and increase its cost by upwards of billions of dollars per month.”

The measures are expected to be one of the Biden administration’s final major sanctions moves against Russia, the official said, calling it a “punctuation on our broader effort” to support Ukraine. Officials on the call declined to say whether the incoming administration will maintain the sanctions, given that President-elect Donald Trump promised during his campaign to end the Russia-Ukraine war during his first day in office. But one official noted that the sanctions were taken under an authority that requires congressional review before being lifted.

“We're in no position to speak for the next team. It's entirely up to them to determine whether or when and on what terms they might lift any sanctions we've put into place,” another official said. “What I can say is that we believe these sanctions” give the Trump administration “a considerable boost to their and Ukraine's leverage in brokering a just and durable peace.”

The designations target more than 180 companies, people, ships and traders involved in Russian oil trade, including two of Russia’s “most significant” oil producers and exporters: Gazprom Neft and Surgutneftegas. OFAC also designated more than two dozen Gazprom Neft and Surgutneftegas subsidiaries and issued several general licenses that authorize certain transactions related to those companies, which expire 12:01 a.m. EST Feb. 27:

• General License 117 authorizes certain wind-down transactions with Gazprom Neft, Surgutneftegas and any entity they own by 50% or more.
• General License 118 authorizes certain transactions with Gazprom Neft, Surgutneftegas and other entities if those transactions are necessary to the divestment or transfer of certain debt or equity. Other entities authorized by the license include Ingosstrakh Insurance Company, which OFAC said has insured oil tankers moving Russian oil; and Limited Liability Company Plant for the Production of Propeller Steering Columns Sapphire as well as and Open Joint Stock Company Volzhsky Abrasive, two Russian manufacturers.
• General License 119 authorizes certain transactions with Gazprom Neft, Surgutneftegas and any entity they own by 50% or more if those transactions are necessary to the official business of diplomatic or consular missions located outside of Russia.

In addition, General License 26 authorizes certain transactions under the Russian Harmful Foreign Activities Sanctions Regulations with a range of newly designated companies, including ship operators, tanker owners, Russian oil companies and others, including Gazprom Neft and Surgutneftegas. The license doesn’t have an expiration date.

OFAC also notably updated General License 8L, which in its previous version had authorized certain energy-related transactions with a list of Russian entities. The license now authorizes the wind-down of those transactions, and the license is set to expire March 12, more than a month earlier than the expiration date of previous General License 8K.

National Security Council official Daleep Singh said in a statement that this will “rescind a provision that previously exempted the intermediation of energy payments from our sanctions on Russian banks.”

OFAC also revoked General License 93, which had authorized certain transactions with vessels owned by Russian company Sovcomflot. That license previously had no expiration date.

New General License 120 authorizes certain safety- and environmental-related transactions, along with transactions involving the unloading of cargo, with a range of newly sanctioned tankers. Those transactions are authorized through 12:01 a.m. EST Feb. 27 and cover a range of ships and shipowners based or flagged in Russia, India, the United Arab Emirates, Panama, Sierra Leone, Hong Kong and elsewhere.

OFAC said many are part of Russia’s so-called shadow fleet, which are fleets of older ships, usually with false registrations, that Russia has been using to transport sanctioned goods (see 2310240068 and 2405150025). A senior administration official said the new designations are meant to further shrink the field of vessels Russia can use to move its oil.

“They are going to have to find alternative ships to deliver oil to different markets,” the official said, adding that “this will come at a cost to Russia, because it's expensive to both procure ships and to lease ships to move oil.”

Other new licenses include:

• General License 121, which authorizes certain transactions involving petroleum services to the Caspian Pipeline Consortium, Tengizchevroil and Sakhalin-2 through 12:01 a.m. EDT June 28.
• General License 115A, which authorizes certain civil nuclear energy-related transactions with Russia’s Gazpombank and other financial institutions through 12:01 a.m. EDT June 30. The license had previously only authorized certain transactions with Gazpombank and its subsidiaries.

OFAC also issued new FAQs to provide guidance on what type of activities are authorized by the licenses and the two new directives that expand U.S. energy sanctions against Russia.

One FAQ clarifies that U.S. companies can still provide services for the ocean transport of Russian crude oil or petroleum as long as the service doesn’t involve a sanctioned party and includes energy being traded at or below the price cap.

Another FAQ said OFAC is planning to soon publish new regulations that define the term "energy sector of the Russian Federation economy,” which will help clarify the scope of the agency’s new determination that allows it to sanction any person or company that operates or has operated in that sector. It said that definition could include the procurement, exploration, extraction, drilling, mining, harvesting, production, refinement, liquefaction of Russian oils and petroleum, along with a range of other broad activities involving the country's energy sector. It could also cover activities related to Russian nuclear, electrical, thermal and renewable energy industries.