US sanctions Russian energy sector while allowing various energy-related activities to continue

On March 8, 2022, President Biden issued an Executive Order targeting certain imports of Russian energy products and new “investments” in Russia’s energy sector, but continuing to allow certain transactions by US and non-US persons. 

Today’s action bans the importation into the United States of Russian crude oil, certain petroleum products, liquefied natural gas (LNG), and coal; new US “investment” in Russia’s energy sector by US persons; and financing or enabling non-US entities to engage in transactions otherwise prohibited by US persons.  Under a general license (General License 16) issued by the US Treasury Department’s Office of Foreign Assets Control (OFAC), the US provides a wind-down period until 12:01 AM Eastern Daylight Time, April 22, 2022 for contracts that were entered into prior to March 8, 2022.  In what may be an indication of favorable views to granting specific licenses beyond April 22, 2022, OFAC stated it “may issue specific licenses on a case-by-case basis to authorize shipments occurring after April 22, 2022.”

However, the US continues to allow for certain transactions in the Russian energy sector.  Today’s Executive Order does not:

• per se prohibit the purchase of Russian oil, petroleum products, LNG or coal for delivery outside of the US by US persons. Accordingly, there is no de-facto restriction on US person commodity traders continuing to buy and sell shares of Russian oil (if not otherwise restricted by other Executive Orders and regulations) or US energy companies purchasing Russian crude for importation to a location outside the US.  Indeed, the US narrowly defines “new investment” restrictions in the energy sector to only include “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.”
• apply to non-liquefied natural gas and other products not specifically set forth in the Executive Order (ie, products other than crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products of Russian Federation origin).
• prohibit imports of non-Russian Federation origin energy products, even if such items transit through or depart from the Russian Federation.

Also, General License 8A, which authorizes certain transactions “related to energy” involving specified Russian financial institutions, including payments connected with a variety of upstream and downstream activities, continues to remain in effect.

These actions were taken without EU, UK, and other allies and partners and are in addition to the extensive sanctions and export controls announced by the US Government in recent days, which we described in prior client alerts published on February 23,  February 25, February 28 and March 4, 2022.  

A number of bipartisan measures have been introduced in the Congress that may impose other trade-related restrictions and further escalate sanctions against Russia, including with respect to its energy sector, if passed and signed into law. 

Going forward

These actions further restrict commercial activity and continue to increase risks of sanctions violations by well-intentioned companies. To stress this point, the Financial Crimes Enforcement Network (FinCEN) advised financial institutions to be vigilant against efforts to evade the expansive sanctions, including through currently unsanctioned Russian and Belarusian entities and digital currencies. 

While the FinCEN alert focuses on the financial sector, all entities with exposure to Russia in various commercial sectors are well advised to ensure they have a strong grasp of US, EU, UK, and other sanctions regimes and implement policies and controls to protect against violations.

To learn more about these developments, please contact any of the authors or your usual DLA Piper relationship attorney.