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| US Imposes Sanctions on Turkish and UAE-Based Shipping Companies for Violating Russian Oil Price Cap |
The United States recently imposed sanctions on Turkish and UAE-based shipping companies for breaching the price cap on Russian oil, signaling the initiation of a G7 enforcement effort. The sanctions, which were enacted on October 12, targeted UAE-based Lumber Marine SA and Turkish firm Ice Pearl Navigation Corp for transporting Russian crude oil priced above the US$60 per barrel cap.
Since December of the previous year, the G7, European Union, and Australia have restricted their companies from providing shipping, finance, insurance, or related services if they facilitate the sale of Russian seaborne crude priced above the established threshold. The primary goal of these sanctions is to limit the Kremlin's oil revenues while ensuring a consistent supply of affordable energy to developing countries. However, concerns have arisen regarding the effectiveness of this price cap in light of recent increases in global crude prices.
The US Office of Foreign Assets Control (OFAC), a sanctions body within the Treasury department, revealed that the SCF Primorye, owned by Lumber Marine, exported Novy Port crude from Russia priced above US$75 a barrel. Similarly, the Yasa Golden Bosphorus, registered under Ice Pearl Navigation, was accused of carrying ESPO crude oil above US$80 a barrel. OFAC claims that both vessels employed US-based service providers during the transportation of Russian crude, thereby violating the rules established by the Price Cap Coalition.
Jason Prince, a partner at law firm Crowell & Moring and former OFAC chief counsel, asserts that these designations serve as a clear message to countries like the UAE, Turkey, China, and India, emphasizing the Coalition's determination to enforce the price cap regime. He anticipates that these designations are just the initial steps in a sustained effort by OFAC and other Coalition partners to enforce the price cap policy.
Analysts point out that both sanctioned vessels were already considered high risk and might have been identified by risk compliance programs, either due to their ownership structures or frequent visits to Russia. The sanctioning of SCF Primorye is seen as a "token gesture" as its ownership is connected to the already blacklisted Russian firm Sovcomflot. However, the sanctioning of the Yasa Golden Bosphorus could serve as a warning to other owners and haulers of Russian cargo.
The impact of the price cap on Russia's energy revenues has decreased due to rising crude prices. In an October Oil Market Report by the International Energy Agency, it was revealed that Moscow's oil export revenues surged to US$18.8 billion in September, the highest since July 2022. Concerns are growing that Russia may increasingly use G7 or EU ships and services to continue trading crude oil above the US$60 mark, relying on false documentation and deceptive practices.
Eric Van Nostrand, acting assistant secretary for economic policy at the US Treasury, indicated that the White House is preparing for the second phase of its Russian oil price cap plans following a successful first stage. He stated that the cap reduced Russian oil revenues by nearly 50% in the first half of 2023 compared to the same period the previous year.
US Treasury Secretary Janet Yellen has hinted at further enforcement action over violations of the price ceiling, emphasizing the seriousness of the cap's enforcement. Alongside enforcement actions, OFAC also published a maritime advisory providing guidance to the industry on compliance with the cap and highlighting various risks associated with non-compliance.
Despite the associated risks, trade finance banks and insurers in the G7, EU, and Australia are protected by a "safe harbor" provision in the price cap scheme. This provision ensures that they will not be penalized for inadvertently advancing evasion schemes of bad actors as long as they comply in good faith with the safe harbor scheme's requirements.
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