US warns companies of possible evasion of Russian oil price cap via ESPO pipeline
The United States government has issued a warning to American companies over the potential evasion of the Russian petroleum price cap of crude oil exported through the Eastern Siberia Pacific Ocean (ESPO) pipeline and ports in eastern Russia. The warning, published by the US Treasury’s Office of Foreign Assets Control (OFAC) on Monday, highlights the possibility that ESPO and other crude oils exported via Pacific ports may be trading above the $60 price cap imposed on Russia by Western countries. Additionally, the warning suggests that US entities may have unknowingly provided services for those trades.
Price cap imposed by the G7 countries and the EU
The Group of Seven countries, including the United States, and the EU have placed the cap on Russian shipments of crude oil since late last year. This is part of sanctions on Russia following its February 2022 invasion of Ukraine. Under the price cap scheme, companies in the G7 countries and the EU can provide financial services such as transportation, insurance, and financing services for Russian oil and oil products only if they are sold above the cap.
The warning
OFAC said that US service providers may be unaware that they are providing covered services involving Russian oil purchased above the price cap. Non-US persons involved in the exports may have provided incomplete or false documentation or used other deceptive practices. This is the first warning of its kind related to the price cap. Spoofing, the practice of manipulating automatic identification systems of some tankers to hide their calls at Kozmino or other ports, can also mask ship-to-ship transfers to disguise the origin of Russian oil. OFAC has suggested that ship owners and other service providers can use records and attestations by oil market players to avoid penalties.
Enforcement actions
Individuals or companies who evade, avoid, or violate the price cap could be subject to civil or criminal enforcement actions, including fines. Rapidan Energy Group, an energy policy analysis company, has said that penalties could include fines. The warning has advised commodities brokers and traders that shipping, freight, and insurance costs are not included in the price caps. Failure to itemize such costs can be used to hide purchases of Russian oil above the cap. OFAC recommends that traders retain documents showing that Russian oil and oil products were bought at or below the cap.
Conclusion
US companies have been warned of possible evasions of the Russian petroleum price cap of crude oil exported through the ESPO pipeline and ports in eastern Russia. The warning advises service providers to use records and attestations by oil market players to avoid penalties. The OFAC has warned that individuals or companies who violate the price cap could be subject to civil or criminal enforcement actions. It is important for commodities brokers and traders to retain documents showing that Russian oil and oil products were bought at or below the cap.
