This client alert is part of a series, with previous perspectives on:
Price cap on Restricted Petroleum Products
The relevant UK, EU and U.S. legislation on the price cap measures applicable to Restricted Petroleum Products are as follows:
The maritime transportation and services restrictions do not apply in relation to Restricted Petroleum Products if the “unit price” (being the price per barrel or, under the UK guidance, per tonne) of such products is at or below the Premium to Crude or Discount to Crude price cap (depending on their HS/CN code).
The table below is indicative of the HS/CN codes that fall under each category. That said, each HS/CN code must be checked on a case by case basis against the relevant EU, UK and U.S. legislation, in order to ensure compliance with all applicable sanctions regimes. This is a notable instance where the U.S. Harmonized Tariff Schedule is different from that of the EU and the UK.
Similar to the equivalent measures on Russian origin crude oil, this price cap only covers the price of the Restricted Petroleum Products. Ancillary costs including, but not limited to, transportation and legal fees are not subject to the price cap.
There is a wind-down under all three sanctions regimes if the Restricted Petroleum Products were loaded onto a ship before 5 February 2023, provided that they are discharged and clear customs in a third country before 1 April 2023.
Updated price cap guidance
The UK, EU and U.S. have also updated their guidance on the scope and practical implementation of the price cap restrictions to include reference to Restricted Petroleum Products.
Updated versions of these documents can be found as follows:
Key updates that operators should take note of are summarized below:
A. Origin of goods
The guidance has been updated such that:
- Refined oil products falling under HS/CN Code 2710 that are derived from Russian origin product but are substantially processed outside Russia are no longer considered to be of Russian origin and, therefore, are not subject to the price cap measures.
- In addition to refining operations in a third country that result in a change in the HS/CN code, “substantial processing” or “substantial transformation” of Restricted Petroleum Products, the price cap restrictions will not apply to the resulting product from blending operations in a third country that result in a HS/CN code change. Further guidance and examples can be found at Annex C of the UK guidance.
- Blending is distinguished from co-mingling. Product resulting from co-mingling of Restricted Products with the same product from non-Russian sources is subject to the price cap restrictions, save for certain exceptions (see, e.g., de minimis example in Annex B of the UK guidance).
B. Bunkering services and bunker fuel
The position with regard to the purchase/supply of Russian origin bunker fuel (that falls under HS/CN Code 2710) for the purposes of refuelling comes with some nuanced differences between the EU, the UK and the U.S.
UK
Under the UK guidance:
- The provision of bunkering services by a UK person to vessels carrying Restricted Products falls outside the ambit of the price cap restrictions. This means that a UK bunker service provider does not need to obtain an attestation from a vessel they provide services to if that vessel is carrying Restricted Products.
- The provision of UK services (including shipping services) to facilitate the maritime transportation of Russian bunker fuel (where in scope – see paragraph 2.5 of the guidance) – i.e., the trade of Russian bunker fuel – is in scope of the maritime services ban. A UK service provider cannot provide services to facilitate the maritime transportation of Russian bunker fuel unless it is being traded below the relevant price cap.
- The purchase of Russian origin bunker fuel “for the purposes of refuelling a UK vessel is also in scope of the UK’s import ban” and “a UK vessel cannot purchase Russian origin bunker fuel for the purposes of refuelling”.
EU
The EU has promulgated several FAQs relevant to the question of Russian bunkering:
- EU FAQ 18a of 4 February 2023 which states as follows (emphasis added):
“18a. Is it prohibited for an EU vessel to bunker Russian petroleum products?
Last update: 4 February 2023
The bunkering by an EU vessel of Russian petroleum products in Russia is possible provided this purchase is required to meet the essential needs of the purchaser in Russia (Article 3m paragraph 9).
Furthermore, if an EU person has no reason to suspect that the petroleum product that it has purchased for the bunkering of its vessel in a third country is of Russian origin, it should not be held liable if such product is of Russian origin. If, exceptionally, the EU person knew, or could not have ignored the Russian origin of such product, it would be in breach of Article 3m, paragraph 1.”
- EU FAQ 4 of 22 June 2022 on oil imports clarifies what is meant by “the essential needs of the purchase in Russia”:
“The exception laid down in paragraph 9 allows EU natural or legal persons situated in Russia, which are bound by the sanctions by application of Article 13(c) and (d) of Regulation 833/2014, to purchase goods listed in Annex XXV for their own daily consumption, for instance to refuel their car or heat their homes. This would typically apply to EU tourists visiting Russia, EU expats living in Russia, EU humanitarian aid providers etc. It would also apply to a branch of an EU company in Russia which would need to purchase the goods for its own use. It would not cover however purchases of such goods for resale or refining for example.”
- EU FAQ 27 of 3 December 2022, which states that:
“27. Which EU vessels should comply with this measure?
Last update: 3 December 2022
The prohibition to transport Russian seaborne oil applies to all EU vessels, i.e. EU flagged vessels, and also vessels that are owned, chartered and/or operated by EU companies or nationals 1 [Article 13, paragraphs b, c and d of Council Regulation 833/2014]. This would also cover agents acting on their behalf.”
- EU FAQ 25 of 4 February 2023, which states that:
“25. Is bunkering of Russian oil included in the maritime related services ban?
Last update: 4 February 2023
No. The provision of bunkering services (supplying fuel for use by ships) to vessels transporting Russian crude or petroleum products is not included in the scope of Article 3n nor the price cap.”
It therefore seems that EU bunker suppliers are not required to ensure that vessels stemming their bunkers are price cap compliant but that EU vessels cannot stem Russian bunkers unless an exception applies.
U.S.
The U.S. position with regard to bunkering is described in the 22 November 22, 2022 OFAC guidance, as well as the 3 February 2023 OFAC guidance.
The U.S. guidance is aligned with the EU and the UK position insofar that the provision of bunkering services to vessels carrying Restricted Products is not caught by the price cap restrictions. However, if a U.S. bunker supplier purchases oil for the purposes of bunkering, then the price cap will apply to that purchase.
C. Payment processing
To align with the EU and U.S. position, the UK guidance clarifies that UK General Licence INT/2022/2470056 excludes processing, clearing and sending payments by intermediary banks from the prohibited services.
D. Flagging and vessel or cargo services
The UK and EU guidance are aligned on flagging services not being subject to the price cap measures. Therefore, flagging registries are not required to obtain attestations from the vessels they provide their services to. However, the U.S. guidance states that flagging services fall within the scope of the price cap restrictions, except if the flagging services consist of deflagging vessels transporting Russian oil sold above the price cap.
The EU has gone further in clarifying that the provision to vessels or cargo of testing, inspection and certification services is not within the scope of the price cap restrictions (EU FAQ 26a of February 4, 2023).
E. Insurance
The EU guidance clarifies that the addition of a vessel to an insurance open cover of an existing fleet policy executed before 4 June 2022 is considered as the execution of the original insurance policy (i.e., not a new contract) (EU FAQ 14a of 4 February 2023). This FAQ follows industry outreach during the latter part of 2022.
In-depth 2023-032
