OFAC increases sanctions targeting Russia’s oil production and exports

On January 10, 2025, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) imposed new Russia-related sanctions restrictions that target Russia’s energy sector–specifically oil production and exports–to diminish its revenue streams amid the ongoing conflict in Ukraine. According to OFAC’s press release, these new measures “impose sanctions on an unprecedented number of oil-carrying vessels” and “are underpinned by the issuance of a new determination that authorizes sanctions pursuant to Executive Order (E.O.) 14024 against persons operating or having operated in the energy sector of the Russian Federation economy.” These new OFAC actions “substantially increase the sanctions risks associated with the Russian oil trade.”

New Russia-Related Sanctions Restrictions

The new sanctions restrictions:

• Create further secondary sanctions designation risk for any person operating in the energy sector of the Russian economy. The Secretary of the Treasury, in consultation with the Secretary of State, issued a determination pursuant to E.O. 14024 that authorizes the imposition of sanctions on any person determined to operate or have operated in the energy sector of the Russian economy. This new determination establishes that any person operating or having operated (defined broadly) in the energy sector of the Russian economy is now subject to additional secondary sanctions risks. It is noteworthy that even with the new Determination, the OFAC Guidance on the Price Cap Policy remains in effect. Frequently Asked Question (“FAQ”) 1216 suggests that OFAC will not target oil and petroleum transactions that comply with the Price Cap Policy for secondary sanctions liability.
• Prohibit the provision of U.S. petroleum services to persons located in Russia. OFAC, in consultation with the Department of State, issued a new determination pursuant to E.O. 14071 prohibiting the provision of U.S. petroleum services to persons located in Russia, cutting off Russia’s access to U.S. services related to the extraction and production of crude oil and other petroleum products. The prohibition will take effect on February 27, 2025.

Substantial SDN Designations

Below is a summary of the designated individuals and entities.

• Russian oil producers and exporters. OFAC designated the following Russian entities as SDNs:
  • Public Joint Stock Company Gazprom Neft (“Gazprom Neft”) – Gazprom Neft is a Russia-based, vertically integrated oil company whose core activities include the exploration, production, and sale of oil.
  • Surgutneftegas – Surgutneftegas is a Russia-based, vertically integrated oil company whose core activities include the exploration, production, and sale of oil.
  • Ingosstrakh Insurance Company – Ingosstrakh Insurance Company is a Russia-based maritime insurance provider.
  • Alfastrakhovanie Group – Alfastrakhovanie Group is a Russia-based maritime insurance provider.
• Gazprom Neft and Surgutneftegas subsidiaries. OFAC designated 28 Russia-based entities that are identified as subsidiaries of either Gazprom Neft or Surgutneftegas. These entities are being designated pursuant to E.O. 14024 for operating or having operated in the energy sector of the Russian Federation economy.
• Sovcomflot and vessels. Joint Stock Company Sovcomflot (“Sovcomflot”) is Russia’s state-owned shipping company and fleet operator that specializes in the transportation of hydrocarbons and the servicing and support of offshore oil production. OFAC designated over 180 vessels involved in transporting Russian oil and LNG. Many of these are owned or operated by Sovcomflot or other entities aiding Russia’s energy logistics.
• Opaque traders of Russian oil. OFAC designated 20 individuals and entities involved in the trading of Russian oil.
• Oilfield service providers and Russian energy officials. OFAC designated 34 oilfield service providers and 13 Russian nationals who provided oilfield services and facilitated Russian energy exports.

On January 15, 2025, OFAC also sanctioned more than 150 entities and individuals in an effort to target a sanctions evasion scheme established between actors in Russia and the People’s Republic of China (“China”). Below is a summary of the designated individuals and entities.

• Regional clearing platforms. OFAC designated 15 entities and one individual involved in setting up regional clearing platforms in both Russia and China to act as counterparties to allow for cross-border payments for sensitive goods.
• Keremet Bank. OFAC designated Kyrgyz Republic-based OJSC Keremet Bank, whose officials have coordinated with Russian officials and another U.S.-designated Russian bank to facilitate cross-border transfers and implement a sanctions evasion scheme.
• Entities operating in the financial services, energy, and defense and related materiel sectors of the Russian Federation economy. OFAC designated 95 entities in the financial services, energy, and defense and related material sectors of the Russian Federation economy.

The recent sanctions by OFAC targeting over 150 entities and individuals involved in sanctions evasion schemes focus on regional clearing platforms, banks like Keremet Bank, and entities operating across critical sectors such as financial services, energy, and defense. For U.S. entities and individuals, these sanctions underscore the heightened risks associated with engaging in business with entities linked to Russia's military-industrial complex or those involved in sanctions evasion activities. This development necessitates increased vigilance and due diligence from U.S. entities to ensure compliance with the evolving sanctions landscape, thereby mitigating potential legal and financial repercussions.

As a result of these designations, all property and interests in property of these SDNs that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50% or more by one or more of these SDNs are also blocked. Furthermore, non-U.S. persons could risk secondary sanctions liability by engaging in certain transactions with these SDNs.

General Licenses

On the same day, OFAC issued the following general licenses (“GL”):

• Russia-related GL 8L authorizes U.S. persons to conduct transactions related to energy involving certain specified Russian entities, which are otherwise prohibited under E.O. 14024. Authorized transactions included transactions necessary to wind down energy-related activities with designates Russian banks and entities, including Vnesheconombank, Sberbank, VTB Bank, and others.
• Russia-related GL 115A authorizes U.S. persons to conduct specific transactions related to civil nuclear energy with designated Russian entities, which are otherwise prohibited under E.O. 14024. Authorized transactions include transactions necessary to maintain or support civil nuclear projects initiated before November 21, 2024, involving entities such as Gazprombank, Sberbank, VTB Bank, and others. The license include entities where the specified organizations have a 50% or greater ownership and the Central Bank of the Russia Federation.
• Russia-related GL 117 authorizes U.S. persons to conduct specific wind-down transactions involving certain Russian entities blocked on January 10, 2025, under E.O. 14024. Authorized transactions include transactions necessary to wind down dealings with Gazprom Neft, Surgutneftegas, and other entities listed in the license (or entities they control with 50% or greater ownership). Payments to blocked persons must be directed into blocked accounts, as per the Russian Harmful Foreign Activities Sanctions Regulations (“RuHSR”).
• Russia-related GL 118 authorizes certain transactions involving debt, equity, and derivative contracts tied to specific Russian entities blocked on January 10, 2025, under E.O. 14024. Authorized activities include transactions necessary for U.S. persons to divest or transfer debt or equity issued by listed entities to non-U.S. persons; transactions for clearing or settling trade of covered debt or equity placed before January 10, 2025; and wind-down transactions for derivative contracts entered into before January 10, 2025, involving blocked entities or linked to covered debt or equity, provided that payments to blocked persons go into blocked accounts.
• Russia-related GL 119 authorizes transactions involving Public Joint Stock Company Gazprom Neft and its subsidiaries, which are otherwise prohibited under E.O. 14024, that are ordinarily incident and necessary for the official operations of diplomatic or consular missions located outside of the Russian Federation. These transactions are authorized through February 27, 2025.
• Russia-related GL 120 authorizes certain transactions involving blocked persons and vessels listed in the Annex to the license under E.O. 14024. Authorized activities include safe docking and anchoring of blocked vessels, activities to preserve the health and safety of the vessel crew, and emergency repairs or environmental protection related to blocked vessels. Delivery and offloading of cargo loaded onto blocked vessels before January 10, 2025 are authorize through February 27, 2025.
• Russia-related GL 121 authorizes transactions related to petroleum services that are otherwise prohibited under the January 10, 2025 determination pursuant to E.O. 14071, specifically for the following projects: (i) Caspian Pipeline Consortium; (ii) Tengizchevroil; and (iii) Sakhalin-2.
• Russia-/Ukraine-related GL 26 authorizes transactions prohibited under E.O. 13662 involving specific blocked persons listed in the Annex or entities they control (50% or more ownership), provided these transactions are: (i) authorized or exempt under the Russian Harmful Foreign Activities Sanctions Regulations (RuHSR); and (ii) covered by general or specific licenses issued under the RuHSR.

FAQs

OFAC also issued the following FAQs:

• FAQ 1213 defines “energy sector of the Russian Federation economy” for purposes of the January 2025 determination pursuant to E.O. 14024. The term “Energy sector of the Russian Federation economy” includes activities such as the procurement, exploration, extraction, drilling, mining, harvesting, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, manufacturing, testing, financing, distribution, purchase or transport to, from, or involving the Russian Federation, of petroleum, including crude oil, lease condensates, unfinished oils, natural gas, liquefied natural gas, natural gas liquids, or petroleum products, or other products capable of producing energy, such as coal, wood, or agricultural products used to manufacture biofuels; the development, production, testing, generation, transmission, financing, or exchange of power, through any means, including nuclear, electrical, thermal, and renewable, to, from, or involving the Russian Federation; and any related activities, including the provision or receipt of goods, services, or technology to, from, or involving the energy sector of the Russian Federation economy.
• FAQ 1214 clarifies that the January 2025 determination pursuant to E.O. 14024 does not automatically sanction all persons operating in Russia’s energy sector; sanctions apply only to those specifically determined to be subject to them.
• FAQ 1215 explains that GL 26 ensures that transactions authorized or exempt under the Russian Harmful Foreign Activities Sanctions Regulations (RuHSR) involving specific persons are also authorized under the Ukraine-/Russia-Related Sanctions Regulations (URSR), provided such transactions are not prohibited by other directives.
• FAQ 1216 announces a determination under E.O. 14071 prohibiting the exportation, reexportation, sale, or supply of petroleum services to any person located in Russia, effective February 27, 2025. OFAC plans to define "petroleum services" to include activities related to exploration, drilling, production, and other facets of petroleum resource development.
• FAQ 1217 confirms that U.S. service providers may continue offering services related to the maritime transport of Russian crude oil and petroleum products to non-sanctioned persons in Russia's energy sector, provided the transactions do not involve blocked entities and comply with the established price cap policy.
• FAQ 967 clarifies that Directive 2 under (E.O.) 14024 prohibits U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for foreign financial institutions designated under this directive. It also prohibits processing transactions involving such institutions. Foreign financial institutions subject to these prohibitions are listed on OFAC's CAPTA List.
• FAQ 976 explains that GL 8L authorizes the wind-down of transactions related to energy involving certain Russian financial institutions sanctioned under E.O. 14024 until March 12, 2025. U.S. financial institutions must process these transactions indirectly through non-sanctioned, non-U.S. financial institutions.
• FAQ 977 clarifies that, for the purposes of GL 8L, the term “related to energy” encompasses activities such as extraction, production, refinement, transport, or purchase of energy products, including petroleum, natural gas, coal, and uranium, as well as the development and transmission of power through various energy sources.
• FAQ 978 explains that U.S. financial institutions cannot maintain correspondent or payable-through accounts for foreign financial institutions designated under Directive 2 of E.O. 14024. Therefore, transactions authorized under GLs 6D, 7A, 8L, or 115A must be processed indirectly through non-sanctioned, non-U.S. financial institutions.
• FAQ 999 provides examples of authorized and prohibited funds transfer under GLs 6D, 7A, 8L, and 115A.
• FAQ 1011 explains that, if a U.S. bank refuses to process a payment related to energy despite authorization under GL 8C, individuals should contact their financial institution for clarification.
• FAQ 1012 states that GL 8C authorizes energy-related transactions through December 5, 2022. If not renewed, OFAC intends to issue a general license to allow the orderly wind-down of activities covered by GL 8C.
• FAQ 1017 provides that GL 8C remains valid following the issuance of E.O. 14066 and authorizes certain energy-related transactions involving specified Russian financial institutions until December 5, 2022. However, it does not authorize transactions prohibited by E.O. 14066.
• FAQ 1117 clarifies that sanctions under E.O. 14024 target individuals operating in Russia’s metals and mining sector but exempt activities focused on safety, environmental protection, or those authorized under GL 115A or GL 6D, with non-U.S. persons generally not at risk if engaging in similar authorized transactions.
• FAQ 1126 lists sectors of the Russian Federation economy identified under (E.O.) 14024, including energy, financial services, defense, and related materiel, among others, where operating within these sectors may subject individuals or entities to sanctions.
• FAQ 1182 explains that foreign financial institutions generally do not risk U.S. sanctions exposure for providing financial services related to authorized humanitarian, agricultural, and medical transactions, even if they involve blocked persons.
• FAQ 1183 outlines authorizations concerning the Moscow Exchange (MOEX), National Clearing Center (NCC), and Non-Bank Credit Institution Joint Stock Company National Settlement Depository (NSD), including wind-down provisions and specific general licenses.
• FAQ 1201 details authorizations for U.S. and third-country diplomatic or consular missions operating in or outside of Russia, and Russian diplomatic or consular missions operating abroad, including transactions involving certain sanctioned entities.
• FAQ 1203 clarifies that (GL) 115A authorizes specific transactions related to civil nuclear energy involving certain sanctioned Russian entities, provided the projects were initiated or under construction