On October 12, 2023, the US Department of the Treasury's Office of Foreign Assets Control (OFAC) imposed sanctions on two entities and two vessels for transporting oil sold above the Coalition Price Cap on Russian oil (the Price Cap). This enforcement action, prompted by OFAC's April 17, 2023 alert regarding possible evasion of the Price Cap via the Port of Kozmino, Russia, is the first of its kind since the US imposed the Price Cap. The action was echoed by a commitment from other Group of 7 (G7) states, the European Union and Australia (the Coalition) to strengthen enforcement of existing economic sanctions on Russia, including the Price Cap. 

The Price Cap, as discussed in our previous briefing, prohibits US persons from providing "covered services" related to the maritime transportation of Russian crude oil and petroleum products if sold over the designated price, currently fixed at:

  • US$60 per barrel for crude oil, as of December 5, 2022
  • US$45 per barrel for discount to crude, as of February 5, 2023
  • US$100 per barrel for premium to crude, as of February 5, 2023

Services covered by the Price Cap include trading and commodities brokering; financing; shipping; insurance, reinsurance and protection and indemnity (P&I); flagging; and customs brokering. The US is now actively enforcing the Price Cap alongside similar policies imposed by its Coalition partners.

This action comes after months of rhetoric, as recently discussed by our UK team, hinting at heightened monitoring and impending enforcement in the face of increasing concerns that the Price Cap would be difficult to enforce due to prevalent and dangerous evasion and circumvention tactics.

Increased risks and best practices for the maritime oil industry

In tandem with OFAC's enforcement action, the Coalition issued an advisory, warning companies operating in the maritime oil industry of "shadow trade" practices being employed to decrease transparency in the shipping industry and evade and circumvent the Price Cap. The Coalition flagged a number of "shadow trade" tactics that carry significant maritime safety and marine environmental risks that companies operating in the sector need to heed. These include the use of:

  • Older or outdated ships, operating past their typical lifespan often with substandard certifications and inadequate safety and maintenance standards;
  • Untested, undercapitalized P&I insurance providers, often that operate in jurisdictions with opaque or lax regulation, that will ultimately be unable to process a major claim should one arise; and
  • Deceptive shipping practices to conceal vessel ownership structure, origin of cargo, vessel location, port calls and logistics activity or other illicit behaviors.

With these risks in mind, the Coalition advises adoption of the following industry best practices to decrease risk:

  1. Require appropriately capitalized P&I insurance.
  2. Ensure vessels are fit for their intended service by receiving classification from an International Association of Classification Societies (IASC) member society.
  3. Require ships to utilize Automatic Identification Systems (AIS) and other tracking mechanisms to ensure, where possible, continuous broadcasting of AIS throughout voyages, and closely monitor irregular or suspicious AIS patterns or data that are inconsistent with known ship locations.
  4. Diligently monitor ship-to-ship cargo transfers, as such transfers are often used to help obfuscate or conceal the origin or destination of cargo in circumventing sanctions and are therefore considered high-risk.
  5. Require an itemized breakdown of shipping and any ancillary costs in order to ensure that opaque fees are not being used to hide oil that is being sold over the Price Cap.
  6. Undertake appropriate due diligence and consider reporting ships that trigger concerns to the appropriate authorities.

Key takeaways

This action and advisory signal the intent of the US and its Coalition partners to toughen their approach to enforcement and, specifically, attempts to evade or undermine the Price Cap and other existing sanctions. 

Companies operating in the maritime oil industry should therefore be cognizant of increased monitoring and enforcement and should look to implement these best practices in order to ensure that stakeholders' and counterparties' behaviors do not raise red flags or pose significant safety risks. It would be prudent for companies to assess their diligence and recordkeeping practices, as needed, and ensure adequate information is maintained to support Price Cap safe-harbor protocols, as discussed in our initial briefing on the Price Cap.

Our team will continue to monitor enforcement and guidance in this space and will publish additional updates as appropriate.


Co-Head of the Contentious Financial Services Group, London

Recent publications

Subscribe and stay up to date with the latest legal news, information and events . . .