US Sanctions Russian Price Cap Violators; G-7 Recommends Maritime Best Practices

The Treasury Department this week sanctioned two ship owners in Turkey and the United Arab Emirates, along with their two vessels, for transporting Russian oil sold above the global price cap set by the U.S. and its allies. The agency also issued a new general license authorizing certain transactions with the two sanctioned ship owners and, together with the Group of 7 countries and Australia, published a new price cap guidance and advisory outlining best practices for the maritime oil industry.

The designations target UAE-based Lumber Marine SA and its ship, the SCF Primorye, which carried oil priced above $75 per barrel from a Russian port after the $60 per barrel crude oil price cap took effect in December (see 2212050014). The U.S. also sanctioned Turkey-based Ice Pearl Navigation Corp., the registered owner of YasaGolden Bosphorus, which carried oil from the Eastern Siberia-Pacific Ocean oil pipeline priced above $80 per barrel. Treasury said both vessels used U.S.-based service providers while transporting the Russian oil.

New General License No. 73 authorizes certain “limited safety and environmental transactions” involving the two companies and vessels, including their safe docking and anchoring, the “preservation” of the health and safety of the crew and any emergency repairs. Those transactions are authorized through 12:01 a.m. EST on Jan. 8.

The new G-7 maritime industry guidance points to an uptick in ships conducting “shadow” trade, which often involves sanctioned parties or products and “irregular and often high-risk shipping practices” meant to hide their activities. A Treasury official recently said Russia has had to invest in a “shadow fleet” to transport its oil (see 2308030032), and the advisory said these fleets typically include older ships operating past their “traditional” lifespans and with false registrations.

These vessels also may present safety risks, the advisory said, adding that they may “fabricate or neglect the appropriate surveys or inspections and lack regulatory certificates required under international conventions.” Crews on the ships may also be pressured to “disregard prudent shipboard practices,” which could “increase the likelihood of marine casualties.” The advisory pointed to other risks posed by shadow fleets, including oil spills and reputational hits to companies who are found to be doing business with a shadow vessel.

The advisory is designed to “promote responsible practices in the maritime oil industry and enhance compliance” with the price caps on both Russian crude oil and petroleum products, the U.S., the EU, Germany, the U.K., Canada, France, Italy, Japan and Australia said in a joint statement. The countries also warned they will impose “restrictive measures” against any entities or vessels violating the cap, specifically pointing to Lumber Marine and Ice Pearl Navigation as examples.

“Our Coalition takes all allegations of evasion and illicit activity seriously, and all Coalition members will respond as appropriate if industry players violate our rules,” the countries said, adding that they also committed to continue “imposing sanctions and other economic measures against Russia in response to its illegal, unjustifiable and unprovoked war. The Coalition stands behind U.S. initiatives to enhance compliance with the price caps.”

In the advisory, the countries listed several compliance and due diligence recommendations for companies transporting oil, saying they should make sure their vessels have “continuous and appropriate” maritime insurance coverage for all their voyages. If a company is using a ship that isn’t insured by a “legitimate insurance provider,” they should “conduct sufficient due diligence” to make sure the insurer can “cover all relevant risks,” the advisory said. That due diligence may include a review of an insurer’s “financial soundness, track record, regulatory record, and/or ownership structure.”

The advisory also said companies should use an International Association of Classification Societies member society to make “informed decisions about the seaworthiness of vessels,” noting some ships involved in shadow trade have “shifted” away from the association. Vessels should also make sure they are broadcasting their Automatic Identification Systems (AIS) signal throughout the voyage and should document cases where they need to disable their AIS or if they come across “irregular” AIS patterns that are inconsistent with actual ship locations.

Vessels should also “conduct enhanced due diligence” if they have to conduct a ship-to-ship transfer -- which involves two boats transferring cargo while at sea -- especially in areas at higher risk for illegal oil trade or AIS manipulation. Other recommended steps include requesting an itemized breakdown of all costs associated with a shipment, the advisory said, because some vessels are bundling various fees and charging higher “ancillary costs” to hide that they purchased Russian oil above the cap. An itemized breakdown of these costs will help companies determine the price that was paid for the oil or petroleum products.

The advisory also urged companies to conduct “heightened” due diligence for ships that have gone through “numerous” administrative changes, such as re-flagging, or when dealing with intermediary companies that hide their beneficial ownership. If a company is aware of a potential price cap violation, they should “report this to relevant authorities,” the advisory said.