International Sanctions and the Energy Sector – Part 2: Russia

by Bracewell LLP
Contact

In the first part of this three part series we considered the impact of President Trump’s decision to re-impose sanctions on Iran’s energy sector with effect from 5 November 2018.

However, Iran is not unique.  Other nations whose economic strength is founded on their energy sector have also found themselves the target of similar sectoral sanctions.

In the second part of this series we explore the EU and the US sanctions that have been imposed against the Russian energy sector.

RUSSIA

Background
The sanctions regimes against Russia were imposed in response to actual or alleged actions by the Russian government.  These included the annexation of Crimea and the destabilisation of Ukraine in 2014, plus the alleged malicious cyber activities aimed at interfering with or undermining the 2016 US presidential election.

They initially targeted a number of individuals and companies alleged to be involved in these actions or those close to the Russian government.  However, they have since been expanded to include sanctions prohibiting activity in certain sectors of Russia’s economy (in particular its energy industry) and have also targeted a number of the so-called ‘Oligarchs’ and the companies in their control.

More recently, sanctions have been imposed in the wake of the Novichok nerve agent attack in Salisbury, UK. 

This article concentrates on the sanctions directly targeting the Russian energy sector.

The EU Sectoral Sanctions
The EU sanctions targeting the Russian energy sector are primarily contained in Council Regulation (EU) No 833/2014 (as amended) (the “EU Regulation”).  They seek to inhibit oil exploration and production projects in Russia:

  1. in waters deeper than 150 meters;
  2. in the offshore area north of the Arctic Circle; or
  3. which exploit shale formations by way of hydraulic fracturing.

(the “Targeted Projects”)

The sanctions operate in two key ways.  First, by preventing the sale, supply, transfer or export of the items listed in Annex II of the EU Regulation (which includes a number of items that can be used in the exploration or production of oil, for example, drill pipe and casing) by EU persons or from the EU for use in the Targeted Projects.1  Second, by prohibiting the direct or indirect provision of associated services necessary for the Targeted Projects, including: drilling, well testing, logging and completion services; and supply of specialised floating vessels.2

The EU Regulation also prohibits:

  1. certain dealings, directly or indirectly, with transferable securities and money-market instruments with a maturity exceeding 30 days and issued after 12 September 2014 by, or
  2. the making of loans or credit with a maturity over 30 days to,

certain Russian companies involved in the sale or transportation of crude oil or petroleum products, any non-EU subsidiaries owned 50% or more by them and any person acting on their behalf or at their direction.3  The companies currently listed in the EU Regulation are Rosneft, Transneft and Gazprom Neft.

Finally, the EU Regulation states that prior authorisation is required in respect of the provision of certain assistance or financing related to the items listed in Annex II of the EU Regulation to individuals or entities in Russia or if the items are to be used in Russia.4

A separate EU regulation prohibits the sale, supply, transfer or export of certain goods and technology suited for use in the energy sector and for the exploration of oil, gas and mineral resources to Crimea or Sevastopol and any associated assistance of financing.5

The EU sanctions apply to anyone within the EU, any EU national or company incorporated in the EU (wherever they may be physically located), and to any business done in whole or in part in the EU.

The US Sectoral Sanctions
The US sanctions targeting the Russian energy sector are primarily contained in Executive Order 13662 (as amended) (the “Order”) and in the Countering America’s Adversaries Through Sanctions Act (“CAATSA”).

The Order applies to “United States persons”.6  However, it could also apply to non-US persons in respect of any transaction that causes a US person to violate the Order or causes a violation of the Order to occur in the US.

In similar fashion to the EU Regulation, Directive 4 of the Order seeks to inhibit oil exploration and production from the Targeted Projects.  It does this by preventing goods, services (other than financial services), or technology in support of exploration or production from being provided to certain restricted entities and their 50% or more subsidiaries.

However, following the introduction of CAATSA in August 2017, the US sectoral sanctions went a step further than their EU counterparts.  In particular, CAATSA extended Directive 4 to include oil projects outside Russia in which the restricted Russian entities have a 33% or greater ownership interest or own the majority of the voting rights.  The US sectoral sanctions can therefore impact projects located far from Russian borders.

The Order also attacks the ability of key companies in the Russian energy sector to access the international debt markets.  Directive 2 of the Order prohibits new debt with a maturity of more than 60 days being issued to certain entities and their 50% or greater subsidiaries.

CAATSA contains various additional provisions impacting the Russian Energy Sector.  In particular, it provides for the:

  1. mandatory imposition of sanctions on non-US persons who knowingly7 make a significant investment8 in a project intended to extract crude oil from deepwater, Arctic offshore or shale projects in Russia (section 225); and
  2. discretionary imposition of sanctions on a person (not limited to US persons) who knowingly:
    1. makes an investment of $1 million or more (or an aggregate value of $5 million or more over a 12‑month period), which directly and significantly contributes to the enhancement of the ability of Russia to construct energy export pipelines; or
    2. provides goods, services, technology, information or support to Russia, which could directly and significantly facilitate the maintenance or expansion of the construction, modernisation or repair of energy export pipelines. (section 232)

That section 232 refers to “energy export pipelines” is significant.  Unlike the previous sanctions targeting the oil sector, section 232 could be applied to pipelines carrying Russian gas, large amounts of which are imported by the EU. 

These additional provisions purport to have extraterritorial effect, which means they are of concern to non-US persons who are otherwise outside the US jurisdiction.  Any non-US persons breaching these provisions may become subject to secondary sanctions that would severely restrict their ability to do business with the US and to access the US financial system, and therefore the international financial system.

The Reaction of Energy Companies
The sanctions imposed on the Russian energy sector have received mixed reactions among energy companies.  The differences between the EU and US sanctions, most especially the manner in which they are enforced, has led to the perception that US companies are more affected than their European counterparts.

Mostly, however, energy companies have been able to progress their projects unimpeded by the sanctions.  This likely reflects the types of projects being progressed in Russia since the sanctions came into force.

The EU and US sectoral sanctions target oil exploration and production from deepwater, Arctic offshore or shale projects in Russia.  Such projects are complicated and require the adoption of advanced techniques and technologies.  Accordingly, they are typically more expensive than, for example, conventional shallow water or onshore drilling operations.  Projects of this nature therefore tend to be uneconomic in periods of lower oil prices, such as those experienced since 2014.  For these reasons, it is possible that such projects might not have been pursued since 2014 even in the absence of sanctions.

In fact, Russian oil production has increased from 10.86 million barrels per day in 2014 to 11.23 million barrels per day in 2017, making it the world’s third largest producer in 2017 behind the US and Saudi Arabia.9  This is a clear indication that the sanctions have not had a significant impact on the Russian energy sector’s ability to produce crude.

Looking Forward
It is questionable whether the sanctions imposed on Russia’s energy sector have been effective.  They have not, it seems, prevented Russia from increasing its production of oil.  Neither have they prevented all deepwater, Arctic or shale projects from being progressed.  However, with higher oil prices than when the sanctions first took effect, the economics of such projects should become more palatable and Russia may begin to feel the impact of the sanctions to greater extents.

Furthermore, the extraterritorial aspects of CAATSA are likely to begin affecting the appetite of non-US persons to make significant investments in Russian energy export pipelines or in Russian deepwater, Arctic offshore or shale projects.  There is also the risk of further sanctions.  The US Energy Secretary, Rick Perry, recently indicated that sanctions on the Nord Stream 2 pipeline are possible and that further energy‑related sanctions are planned.10   In addition, further sanctions on Russia in relation to the Novichok nerve agent attack in Salisbury, UK are expected, although it is not yet clear what form they will take and whether they will target Russia’s energy sector.11

________________________________________________________________

1 Article 3 of the EU Regulation.

2 Article 3a of the EU Regulation.

3 Articles 5(2) and 5(3) of the EU Regulation.

4 Article 4.3(a) of the EU Regulation.

5 Article 2(b) of Regulation EU No 692/2014.

6 United States persons is defined as “any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States” (Section 6(c) of Executive Order 13662).

7 “Knowingly” for these purposes means a person who had actual knowledge, or who should have known, of the conduct, circumstance or result.

8 Guidance from the US Department of State that whether or not an investment is “significant” will be determined on a case by case basis taking into account inter alia the nature and magnitude of the investment and its relation and significance to the Russian Energy Sector.

9 https://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review/bp-stats-review-2018-full-report.pdf.

10 https://www.nytimes.com/aponline/2018/09/13/world/europe/ap-eu-russia-energy.html.

11 https://www.reuters.com/article/us-usa-russia-sanctions/u-s-says-to-issue-chemical-weapons-related-sanctions-against-russia-idUSKCN1NB2M7.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bracewell LLP | Attorney Advertising

Written by:

Bracewell LLP
Contact
more
less

Bracewell LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.