Oil price cap does not apply to Russian petroleum product processed by being blended in a third country
EU issues guidance on oil price cap effective from 5 February 2023
The European Union which together with the international G7 + adopted price caps for seaborne Russian petroleum products, has issued guidance on application of oil price cap. The document is published on the official website of the European Commission.
These measures apply to Russian crude oil falling under CN code 2709 and Russian petroleum products falling under CN code 2710. Oil and petroleum products which originate in a third country and are only being loaded in, departing from or transiting through Russia, provided that both the origin and the owner of those goods are non-Russian, are exempt from the price cap.
For the purposes of the price cap, once Russian crude is substantially transformed in a third country other than Russia, it is no longer considered to be of Russian origin, and thus the price cap no longer applies. With regards to petroleum products, the price cap no longer applies when the blending operations in a third country involving Russia origin petroleum products result in a tariff shift.
Crude oil or petroleum products of non-Russian origin that contain a de minimis amount of Russian oil left over from a container or tank will not be considered Russian origin oil and thus will not be subject to the price cap.
“In the case of the Caspian Pipeline Consortium pipeline which transports Kazakh oil through Russia, the mixed oil is Kazakhstan origin oil, as proven by a certificate of origin or other documentation providing evidence on the origin of the product, with some unavoidable Russian oil residue for technical reasons. The transport of this oil would not be subject to the price cap,” reads the document.
There is a 55-day wind-down period for seaborne Russian petroleum products purchased above the price cap, provided it is loaded onto a vessel at the port of loading prior to 5 February 2023 and unloaded at the final port of destination prior to 1 April 2023. In case of proven force majeure hindering the unloading at the final port of destination prior to 1 April 2023, this wind-down period can be extended beyond 55 days until the hindering circumstance has ceased to exist.
The bunkering by an EU vessel of Russian petroleum products in Russia is possible provided this purchase is required to meet the essential needs of the purchaser in Russia. If an EU person has no reason to suspect that the petroleum product that it has purchased for the bunkering of its vessel in a third country is of Russian origin, it should not be held liable if such product is of Russian origin.
On 2 December 2022, G7 countries and Australia imposed a price cap for Russian crude oil from 5 December 2022. The ban covers maritime transportation services for crude above the $60 per barrel. In early February 2023, the European Union – together with the international G7+ Price Cap Coalition – adopted further price caps for seaborne Russian petroleum products.
Russian President Vladimir Putin earlier signed an Executive Order on special economic measures in the fuel-and-energy sector in response to the price cap established on Russian oil and oil products by some foreign states. The Executive Order has established that Russia bans the sale of oil and oil products to foreign companies and individuals if the contracts on these sales include the use of this mechanism directly or indirectly. The established ban applies to all stages of sales up to and including the final buyer. The order is effective from February 1, 2023 until 1 July 2023.
