On January 10, 2025, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a sweeping set of actions to further reduce Russian revenues from energy, including blocking two major Russian oil producers, Gazprom Neft and Surgutneftegas, and imposing sanctions on a very significant number of oil-carrying vessels, opaque traders of Russian oil located in jurisdictions like Hong Kong and the UAE, Russia-based oilfield service providers, and Russian energy officials. The U.S. Department of State also took steps to block two active liquefied natural gas projects, a large Russian oil project, and third-country entities supporting Russia’s energy exports. Lastly, the United Kingdom also joined the U.S. in sanctioning Gazprom Neft and Surgutneftegas – which, coupled with the joint Memorandum of Understanding issued by OFAC and OFSI on January 13, is a testament to the increased cooperation between the U.S. and UK authorities. Although there are wind-downs in place for most of these entities, this round of designations is likely to cause major disruptions in the market. We summarize the new restrictions in turn below:
Issuance of New Determinations
OFAC issued a new determination that authorizes sanctions pursuant to Executive Order (E.O.) 14024 against persons operating or having operated in the energy sector of the Russian economy. This determination allows for the imposition of sanctions against any person, U.S. or non-U.S., that are determined to operate or have operated in the energy sector of the Russian Federation economy.
OFAC also issued a new determination that prohibits the provision of U.S. petroleum services to persons located in the Russian Federation, cutting off Russia’s access to U.S. services related to the extraction and production of crude oil and other petroleum products. This determination specifically excludes from its scope “certain covered services related to the maritime transport of crude oil and petroleum products of Russian Federation origin, provided that such crude oil or petroleum products are purchased at or below the relevant determined price caps.” Accordingly, the general price cap rules remain unaffected by this prohibition. In its press release, the Treasury Department stated that these actions substantially increase the sanctions risks associated with Russian energy trade, including shipping and financial facilitation in support of Russia’s oil exports. Thus, parties should exercise even greater caution in the Russian energy space going forward.
New U.S. Designations
In addition to Gazprom Neft and Sugutneftegas OFAC and the Department of State designated 183 vessels, largely oil tankers that are part of the “shadow fleet,” opaque traders of Russian oil (such as Guron Trading limited, Demex Trading limited DMCC and Pratum Oil Trading LLC), Russia-based oilfield service providers, and Russian energy executives and officials. OFAC also designated two Russia-based maritime insurance providers, Ingosstrakh Insurance Company (previously sanctioned by the UK) and Alfastrakhovanie Group (previously sanctioned by the EU and the UK), as well as two Russian LNG projects and several PRC and India-based entities that have been involved in supporting the sanctioned Arctic LNG 2 project. As a result of these designations, all property and interests in property of these persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the U.S. (including any transaction by non-U.S. persons using U.S. dollars) that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or otherwise exempt. Furthermore, given that these entities are designated under Executive Orders that give rise to secondary sanctions, non-U.S. persons will potentially be exposed to secondary sanctions if they interact with these entities.
While the entire list may be found here and here, some of the most prominent newly designated entities are as follows:
Sovcomflot JSC
- Although Sovcomflot JSC was previously designated under E.O. 14024, it is now also designated under E.O. 13662. However, more importantly, Treasury also identified as blocked property 69 vessels, including 54 oil and product tankers and four liquefied natural gas (LNG) tankers, that are owned by Sovcomflot. Additionally, OFAC revoked Russia General License 93, which previously provided a general authorization for transactions with Sovcomflot vessels.
Gazprom Neft
- Being a major supplier of Russian oil, the designation of Gazprom Neft is likely to be disruptive to the market. It also has numerous subsidiaries that are now considered blocked.
Gazpromneft Marine Bunker Limited Liability Company
- A major bunker supplier owning numerous bunker vessels that have frequently been used by G7/EU vessels calling Russia. As a result of its designation, the bunker vessels owned by this entity are now also considered blocked property.
Surgutneftegas
- Similar to Gazprom Neft, this is a major supplier of Russian oil frequently used by Western service providers carrying Russian-origin oil under the Price Cap exception. Accordingly, this is likely to have major implications on the market.
JSC Rosnefteflot
- The marine transportation arm of Russian oil company Joint Stock Company Rosneft Oil Company (Rosneft).
Gazprom SPG Portovaya Limited Liability Company
- The Department of State designated this Russia-based operator of the Portovaya LNG Terminal.
Cryogas Vysotsk Limited Liability Company
- The Department of State designated this Russia-based operator of the Cryogas Vysotsk LNG Terminal.
General Licenses
In conjunction with the designations, OFAC has issued General Licenses that permit the wind-down of transactions with a number of these entities. These can be found here, but some of the most important ones are the following;
General License 117
General License 117 permits until February 27, 2025 transactions that are ordinarily incident and necessary to the wind down of any transaction involving one or more of the blocked entities listed in the Annex to the General License, including Ingosstrakh Insurance Company, PJSC Gazprom Neft and Surgutneftegas.
General License 120
General License 120 authorizes, subject to certain conditions, until February 27, 2025 transactions related to the preservation of safety and environment as well as unloading of cargo of certain blocked vessels – including Sovcomflot vessels and Gazpromneft Marine Bunker LLC vessels.
General License 121
General License 121 creates a carve-out from the above-mentioned determination prohibiting U.S. persons from providing petroleum services to projects in Russia, and permits this until June 28, 2025 for the following projects:
(1) Caspian Pipeline Consortium;
(2) Tengizchevroil; or
(3) Sakhalin-2.
It is too early to say whether this General License will be extended.
General License 8L
General License 8L permits until March 12, 2025, transactions with numerous blocked Russian financial institutions provided these transactions are for the wind-down of any transaction related to energy.
UK Designation
In conjunction with the U.S. actions, the UK also designated Gazprom Neft and PJSC Surgutneftegas – ultimately prohibiting UK persons from dealing with these entities and the entities that they own or control.
Similar to the U.S., General License INT/2025/5635700 has been granted under regulation 64 of the Russia (Sanctions) (EU Exit) Regulations 2019 (“the Russia Regulations”) which is valid until 27 February 2025.
The UK general license applies to Gazprom Neft, PJSC Surgutneftegas, as well as their subsidiaries that they own or control (collectively, the “DPs”), which are subject to asset freezes and other restrictions under the Russia Regulations. The general license exempts any act that would otherwise breach the asset freeze prohibitions in Regulations 11 to 17A of the Russia Regulations.
The permissions in the general license allow any person (other than a designated person) to wind down or divest from any transactions involving a DP to which that person is a party, including the closing out of any positions, and any person, a relevant UK institution, or a DP to carry out any activity reasonably necessary to effect this.
OFSI and OFAC Memorandum of Understanding
Three days following the joint efforts by the UK and the U.S. against Gazprom Neft and PJSC Surgutneftegas, OFAC and OFSI issued a joint Memorandum of Understanding, which outlines the future cooperation between the two agencies. The purpose of this agreement is to allow for sharing of relevant information, conducting coordinated investigations, training of personnel, discussions on regulatory expectations, economic analysis, and other practical arrangements. This is likely to mean that we will see increasing alignment between the two regulators.
We will continue to monitor the developments and provide updates as appropriate. Please contact us if you have any questions or concerns regarding these sanctions or their potential impact on your business.