Sanctions against Russia – March 2024 update

This article was co-authored by Megan Atkins, Legal Assistant.

The imposition of sanctions to curb access to international markets has long since been a strategy used against states and individuals to weaken them in times of conflict. It has become not only the carrot but also the stick that is used to herd those who have been deemed to have strayed outside to what is internationally lawful and acceptable.

Since its annexation of Crimea in 2014, Russia has been met with international condemnation and a raft of measures designed to influence the country’s conduct. The intensity and scope of those measures have since been increased to unprecedented levels by the US, UK, EU, Canada and Australia following the invasion of Ukraine in February 2022.

UK sanctions

The purpose of the Russia (Sanctions) (EU Exit) Regulations 2019 (the Regulations), which have gone through a number of iterations, was/is to corral Russia into ceasing its actions in destabilising Ukraine and threatening Ukrainian territorial integrity, sovereignty and independence.

The Regulations impose financial, immigration, trade, shipping and aircraft sanctions. The latest raft of measures clamp down on, among others, the energy trade; a further attempt at cutting off funding for Russia’s war.

To mark the second anniversary of Russia’s invasion of Ukraine, the Treasury Committee has launched a new inquiry into whether the sanctions have worked as desired and whether they have hampered Putin’s ability to fund the Russian army.

The inquiry will seek to understand how effective the seizing of frozen assets has been and will explore whether the sanctions should be broadened.

EU sanctions

Running parallel with the UK’s approach, the EU’s 12th package of sanctions, which was adopted by the European Council in December 2023, brings into force fresh measures that strictly regulate the sale of oil tankers.

The restrictions were brought in on the back of tankers being used to transport oil to Russia – the ‘shadow fleet’; thereby circumventing the price cap that was introduced in 2022. Now, tankers used for transporting crude oil or petroleum products (falling under HS Code 8901 20) from Russia or for use in Russia cannot be sold unless certain conditions are met.

These conditions require that any sale, or other arrangement entailing a transfer of ownership of tankers, to any third country by a national of a EU member state, a natural person residing in a EU member state, or a legal person, entity or body which is established in the European Union, must now be immediately notified to the competent authorities.

Oil cap measures

In 2022, the G7, EU and Australia agreed to cap Russia’s oil export prices to US$60 per barrel for crude oil and US$100 per barrel for petroleum products. With the consequent volatility to the global oil trade following Russia’s actions in Ukraine, the price cap is aimed at stabilising global oil markets for the supply of crude oil and petroleum products, controlling inflation, and reducing oil revenues that support Russia’s activities in Ukraine.

The response to the introduction of the price cap was picked up by the Center for Research on Energy and Clean Air, which noted that Russia’s energy revenue reduced by 14 percent in 2023.

That said, the strides the price cap made were quickly undone in the latter part of the year due to enforcement and monitoring failures. However, according to the US Treasury, the strengthening of enforcement measures more recently has forced Russia to sell oil at a higher discount when compared to the international Brent crude benchmark. In October 2023, the price was discounted by a further US$12 to US$13 per barrel and within the last month, tighter compliance has cut Russian oil prices by around US$19 per barrel.

OFAC response

There has been some immediate return for the ramping up of enforcement measures, with the recent US Office of Foreign Assets Control (OFAC) designation of Sovcomflot and its 14 vessels for its role in operating in the marine sector of the Russian Federation economy and for being controlled, or having acted for or on behalf of, directly or indirectly, the Government of the Russian Federation.

The restrictions prevent Sovcomflot from obtaining US-owned property and prohibits US persons from engaging in business activities with it. A general licence was issued by OFAC that allows the 14 sanctioned vessels to offload crude oil or any other cargo for 45 days. The remainder of the Sovcomflot fleet, claimed to be 147 vessels by the company, remain unsanctioned.

Comment

There is evidently a push to limit revenue streams for Russia and to limit is activities on the global market through what appear to be a careful and targeted raft of measures designed to stunt its ability to further arm the war in Ukraine.

Companies in the marine sector would be wise to keep abreast of the rapidly changing landscape by not only seeking relevant advice, but also ensuring that current processes and/or procedures are up to date and take stock of any risk areas that the business may succumb to.