Effective February 5, 2023, the Price Cap Coalition (the Coalition), consisting of the G7 nations, the European Union (EU) and Australia, set a price cap of $45 per barrel for “Discount to Crude” petroleum products of Russian origin and $100 per barrel for “Premium to Crude” petroleum products of Russian origin. This announcement follows the Coalition’s implementation of its first price cap on Russian-origin crude oil exports on December 5, 2022, which we previously summarized. Since then, senior Russian officials have acknowledged that the crude oil price cap has cut into Russia’s most important source of revenue. The Coalition expects these measures to reduce the ability of Russia to fund its war against Ukraine.

The Coalition intends to continually review and adjust the price caps to ensure effectiveness. The first review has been delayed until March, in order to give the Coalition time to assess the market after the implementation of these additional price caps.

US Implementation of Russian Petroleum Products Price Cap

On February 3, 2023, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) released updated guidance, “OFAC Guidance on the Implementation of the Price Cap Policy for Crude Oil and Petroleum Products of Russian Federation Origin” (OFAC Guidance). It also issued two new Determinations under Executive Order 14071 to give effect to the new price caps: a Determination that prohibits certain “Covered Services” related to the maritime transport of Russian-origin petroleum products and an additional Determination setting the price cap for Russian-origin “Discount to Crude” petroleum products at $45 per barrel and Russian-origin “Premium to Crude” petroleum products at $100 per barrel (collectively, the Determinations).

Effective at 12:01 a.m. on February 5, 2023, the new Determinations prohibit the “exportation, reexportation, sale, or supply” from the United States or by a US person of a list of “Covered Services” relating to the maritime transport of petroleum products to “any person located in the Russian Federation.” Pursuant to the Determinations, if the Russian petroleum products are purchased above the price cap, then the following Covered Services are prohibited: trading/commodities brokering, financing, shipping, insurance (including reinsurance and protection and indemnity), flagging and customs brokering.

The updated OFAC Guidance provides additional clarity on the scope of the prohibitions defined in the Determinations. The guidance explains that “petroleum products” means articles defined at Harmonized Tariff Schedule of the United States (HTSUS) heading 2710. It further clarifies that articles subject to the Premium to Crude price cap include gasoline, motor fuel blending stock, gasoil and diesel fuel, kerosene and kerosene-type jet fuel, and vacuum gas oil. Articles subject to the Discount to Crude price cap include naphtha, residual fuel oil and waste oils.

In addition, FAQ 1109 provides that Russian petroleum products that are loaded onto a vessel at the port of loading prior to 12:01 a.m. Eastern Standard Time, February 5, 2023, and unloaded at the port of destination prior to 12:01 a.m. Eastern Daylight Time, April 1, 2023, are not subject to the petroleum products determinations.

OFAC also issued two General Licenses (“GL”) authorizing transactions otherwise prohibited by the November 21, 2022 Determination and the February 3, 2023 Determinations:

• related to the importation of petroleum products, into the Republic of Bulgaria, the Republic of Croatia or landlocked European Union member states as described in Council Regulation (EU) 2022/879 through June 3, 2022 (GL 56A); and
• that are ordinarily incident and necessary to addressing vessel emergencies related to the health or safety of the crew or environmental protection, including safe docking or anchoring, emergency repairs, or salvage operations (GL 57A).

EU Implementation of Russian Petroleum Products Price Cap

On February 4, 2023, the Council of the EU set two price caps for petroleum products falling under CN code 2710 that originate in or are exported from Russia, as listed in Annex XXVIII of Regulation (EU) No 833/2014. The first price cap for petroleum products traded at a discount to crude oil was set at $45 per barrel, while the second price cap for products traded at a premium to crude was set at $100 per barrel.

Accordingly, as of February 5, it is prohibited to provide:

• maritime transport of petroleum products traded above these price caps to third countries; and
• technical assistance, brokering services or financing or financial assistance, related to the maritime transport of petroleum products traded above these price caps to third countries.

The amended Art. 3n(6)(e) of Regulation (EU) No 833/2014 also provides for a transitional period of 55 days for those vessels carrying Russian petroleum products that were purchased and loaded onto the vessel prior to February 5, 2023, and unloaded prior to April 1, 2023.

In line with the decision of the Coalition, the functioning of the price cap mechanism and the related prohibitions shall be reviewed by mid-March 2023 and every two months thereafter. This review shall take into account the effectiveness of the measure in terms of its expected results; its implementation, international adherence to and informal alignment with the price cap mechanism; and its potential impact on the EU and its member states, as well as developments in the market, including possible turbulences.

UK Implementation of Russian Petroleum Products Price Cap

On February 5, 2023, the UK’s Maritime Services Prohibition and Oil Price Cap was extended to include oil products, i.e., products with Harmonized System codes 2710. Under section 46Z9B of the Russia (Sanctions) (EU Exit) Regulations 2019 (the Regulations), a person must not directly or indirectly, on or after February 5, 2023, supply or deliver by ship, 2710 oil and oil products –

• from a place in Russia to a third country; or
• from one third country to another third country

On December 5, 2022, the Office of Financial Sanctions Implementation (OFSI) introduced General License GL/INT/2022/2469656, which set the crude oil price cap at $60 per barrel. The price cap negates the effect of the above prohibitions in relation to Russian oil purchased or sold below a set price. On February 3, 2023, this General License was amended to include 2710 oil and oil products under the definition of “Russian oil.” Under this General License, 22 specific 2710 oil product codes are categorized as “Premium to Crude” and subject to the price cap for Premium to Crude ($100 per barrel), while all other 2710 oil product codes are categorized as “Discount to Crude” and subject to the Discount to Crude price cap ($45 per barrel).

On February 3, 2023, OFSI also introduced General License GL/INT/2023/2660772, the “Refined Oil Products Winddown” General License. This permits contracts to ship Russian 2710 oil products traded at a price above the price cap, provided the product was loaded before 5:01 a.m. GMT on February 5, 2023, and was or will be offloaded in a third country prior to 5:01 a.m. GMT on April 1, 2023.