By Daniel Pickard and Jordan Yeagley, Buchanan, Ingersoll & Rooney
Of the numerous sanctions levied against Russia as a result of its invasion of Ukraine, none may have a more devastating impact than those affecting the country’s largest export – energy. Based on estimates from Bloomberg Economics, crude oil, petroleum, gas and coal could account for approximately $321 billion of export revenues for Russia in 2022, much of which is now subject to bans and/or sanctions from the United States and its allies.
Last month, President Biden issued an Executive Order banning all imports of Russian oil, liquefied natural gas and coal. It will be the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury that will administer and enforce the economic and trade sanctions against Russia. OFAC imposes sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.
OFAC is continuing to roll out sanctions against Russia on an almost weekly basis. Subsequent to the ban on the import of oil, gas and coal, the U.S. government has announced restrictions involving, among other items, Russian fish, seafood, alcoholic beverages, non-industrial diamonds, luxury goods, new investment in certain sectors of the Russian economy, and the sale or supply of U.S. dollar-denominated banknotes. On March 31, OFAC again expanded its sanctions to cover Russia’s aerospace, electronics and marine sectors, as well as continuing to add individuals and entities to the Specially Designed Nationals List (to whom U.S. persons are prohibiting from providing or receiving goods, technology or services). This month OFAC issued additional prohibitions involving sanctions on Russia’s largest financial institution, Sberbank, and Russia’s largest private bank, Alfa Bank.
In addition to OFAC, the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) has increased U.S. commercial export controls on goods destined for Russia. This has resulted in increasing licensing requirements for exports to Russia and designated Russian entities. BIS has also targeted Russia’s oil refinery sector, including new rules restricting certain exports supporting Russian exploration or production from deep water, Arctic offshore or shale projects with potential to produce oil or gas.
The United States has previously enacted “secondary sanctions” in other contexts. These prohibitions target non-U.S. persons (primarily foreign financial institutions and foreign sanctions evaders) who do business with individuals, countries, regimes and organizations that are subject to existing OFAC sanctions. Some have questioned whether the Biden Administration will enact secondary sanctions on countries that still import Russian energy – as has been done by prior administrations in regard to Iran. It is unlikely at this time that the Biden Administration will be willing to sanction major allies, including those in Europe. However, it is highly likely that OFAC will continue to issue additional restrictions including those involving the energy sector, as long Russian troops remain in Ukraine.
Council Member Buchanan, Ingersoll & Rooney provides insights on international trade issues specific to energy services and technology companies. Daniel Pickard is Chair, International Trade & National Security Practice Group, and Jordan Yeagley is Associate.