Russia sanctions: EU sets price cap for Russian oil

On 3 December 2022, the EU set the expected price cap for oil from Russia as agreed with the G7 partners and Australia. The price cap will come into force for crude oil on 5 December and for refined petroleum products on 5 February 2023. In addition, as of now Russian crude oil may only be imported into the European Union in exceptional cases.

The new regulations at a glance

• The EU, as agreed with the G7 and Australia, has set the price cap for crude oil at 60 US Dollar per barrel. Purpose of the price cap is to restrict exports of Russian oil to third countries.
• The price cap does not affect the existing EU ban on imports of Russian crude oil and petroleum products and the specific exemptions already agreed in previous sanctions packages. These exemptions allow certain Member States to continue to import crude oil and petroleum products from Russia, or to import crude oil by sea from Russia, due to their specific situation, if the supply of crude oil via pipelines from Russia is interrupted for reasons beyond their control.
• The price cap sanctions the Russian oil business by targeting transports and the necessary services such as insurance. This means concretely that transports of Russian oil to third countries and the services required therefor are prohibited for EU companies - unless the price for the oil is below the cap. Thus, if the price cap is respected, European shipping companies can continue to transport Russian oil to India, China or other countries. Services such as insurance, technical assistance and financing and brokerage services may then also continue to be offered to Russia.
• The regulations are very complex in detail and some exceptions and transition periods apply. For example, if Russian oil was purchased at a price above the price limit, has already been loaded onto a ship and will be unloaded at the port of final destination before 19 January 2023, the bans do not apply. In addition, transport and related services will remain permitted for up to 90 days after any further EU decision to lower the price cap now adopted, if the oil price in the relevant contract is equal to the previous price cap.

What to do now?

• If a vessel flying the flag of a third country intentionally carries Russian oil above the price cap, operators in the EU are prohibited from insuring, financing and servicing that vessel for the transport of Russian oil or petroleum products for 90 days after the cargo purchased above the price cap has been unloaded.
• If a ship flying an EU flag violates the price cap, it has to bear the consequences resulting from the national legislation of the respective Member State. In Germany, violations may result in criminal investigations or administrative proceedings.
• The EU will review the functioning of the price cap mechanism and the other bans and restrictions on crude oil and petroleum products in mid-January 2023 and every two months thereafter. In this respect, companies should also be prepared for changes in the legal situation at short notice.

It remains to be seen whether Russia and other oil-producing states will take countermeasures. In this respect, Russian government representatives have already said that they will react in terms of trade policy.

Finally, it remains to be seen whether other countries will join the EU, G7 and Australia in extending the scope of the ban.

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