As Russian Oil Trade Booms, US Warns Shipping of Compliance Risks
Russian oil exports are at the highest volume in nearly three years, according to the IEA, reflecting continued demand in Asian markets and ready access to shipping services. As the trade grows, the governments of the United States and the UK have issued new warnings to the shipping community about the risks of violating sanctions on Russian crude oil, including the ban on cargoes that are priced above the G7 price cap.
U.S. and EU shipping companies are allowed to participate in the transport of Russian crude, so long as it is priced below $60 per barrel. These cargoes are a source of income for some EU-domiciled tanker firms, particularly in the Greek shipping sector. G7-based insurers, brokers and other service providers are covered by the same regulation.
In a warning note published Monday, the U.S. Treasury's Office of Foreign Asset Control cautioned that it is aware of the widely-circulated reports that Russia is selling the ESPO crude grade out of Kozmino for prices above the $60 price cap. Some of these shipments may be enabled by services provided by U.S. persons, OFAC warned, and these U.S. entities may have been provided with false or deceptive documentation during the transaction. AIS spoofing is a particularly risky factor, according to OFAC: some tankers involved in the Kozmino trade are in the practice of faking their AIS signals to disguise their port calls at the Russian Pacific coast oil terminal, or to hide ship-to-ship transfers. "U.S. persons providing covered services to tankers should view AIS manipulation that disguises a tanker’s port of call in the Russian Federation as evidence of possible evasion of the price cap," the agency warned.
Many categories of U.S. service providers - like insurers and U.S.-domiciled flag states - do not have a legal due-diligence requirement for assessing the price compliance of any Russian oil they help to transport. Instead, an attestation of compliance is enough to earn safe harbor from OFAC enforcement. However, OFAC encouraged these market participants to be aware of the risk that shipments out of Kozmino could be violating the cap, and to watch out for AIS manipulation.
UK may seize mixed cargoes
Oil is often mixed en route to its final destination, and when the oil is Russian and the destination is Britain, the practice may incur steep penalties.
The UK has banned Russian crude oil and petroleum product imports since last year. In a note to clarify the rules for traders, the UK Department for Transport noted last week that the ban also applies to Russian oil which has been mixed (to a meaningful degree) with oil from another source. The ban applies no matter whether the importer was aware of the true origins of the cargo or not, and it is not contingent on the port or anchorage of loading.
"If restricted goods are imported into the UK then that is a breach of the prohibitions and is open to enforcement action, including seizure of the goods," cautioned DfT.
Confiscation could be the least of the importer's problems. If they are aware of the nature of a part-Russian cargo or have reason to believe it could be co-mingled, and the importation still occurs, the act is a criminal offense and subject to prosecution.