Russia/Ukraine Crisis: U.S. Targets Russia’s Energy Industry | Insights

Authors:

Ama A. Adams , Brendan C. Hanifin , Emerson Siegle

On January 10, 2025, the United States announced (another) major sanctions package targeting Russia, potentially representing the Biden administration’s last and best effort to strengthen Ukraine’s negotiating position in advance of anticipated peace talks. The new sanctions target Russia’s energy industry, the Russian government’s largest source of revenue.

Energy Industry Restrictions

The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) published two new determinations targeting the Russian energy sector.

First, OFAC issued a determination, pursuant to Executive Order 14024, that authorizes the imposition of sanctions on any person—regardless of nationality—determined to operate or have operated in the energy sector of the Russian economy. As with prior sector-focused determinations (targeting, inter alia, Russia’s aerospace, defense, financial services, and metals and mining sectors), the January 10 determination is not self-executing. However, the determination may presage the imposition of sanctions against an increasing number of non-Russian companies that continue to operate in (or adjacent to) Russia’s energy industry.¹

In connection with this determination, OFAC issued General License No. 8L, which authorizes the wind down of energy transactions involving specified sanctioned Russian parties. General License No. 8L expires at 12:01 am ET on March 12, 2025.
Second, OFAC issued a determination, pursuant to Executive Order 14071, prohibiting the provision of petroleum services to Russia from the United States or by U.S. persons.² This determination takes effect on February 27, 2025, and is subject to limited exceptions, including for (1) petroleum services related to isotopes derived from petroleum manufacturing that are used for medical, agricultural, or environmental purposes, such as Carbon-13; (2) certain services in connection with the maritime transport of crude oil and petroleum, provided these products are purchased at or below the relevant price cap; and (3) transactions related to the wind down or divestiture of non-Russian-owned entities in Russia.

Sanctions Designations

OFAC—in coordination with the United Kingdom—imposed sanctions on two of Russia’s most significant oil producers: Public Joint Stock Company Gazprom Neft and Surgutneftegas (as well as dozens of their subsidiaries). OFAC issued General License No. 117 and General License No. 118, which authorize wind down transactions involving these and certain other specified sanctioned parties, and wind down transactions involving debt or equity of such entities, through 12:01 am ET on February 27, 2025. In addition, General License No. 119 authorizes transactions ordinarily incident and necessary to the official business of diplomatic or consular missions located outside of Russia and involving Gazprom Neft or its subsidiaries (also until February 27).

OFAC also imposed sanctions on Joint Stock Company Sovcomflot, Russia’s state-owned shipping company and fleet operator, along with 183 vessels that the U.S. government has determined are part of a “shadow fleet” engaging in high-risk shipping practices to facilitate illicit or sanctionable activity. In connection with the shipping-related designations, OFAC published time-limited general licenses, including General License No. 120 (authorizing through 12:01 am ET on February 27, 2025 transactions involving specific sanctioned parties related to safe docking and anchoring, preservation of the health or safety of crewmembers, emergency repairs, and environmental mitigation or protection activities); General License No. 121 (authorizing through 12:01 am ET on June 28, 2025 transactions involving the Caspian Pipeline Consortium, Tengizchevroil, or Sakhalin-2 projects); and General License No. 26 (providing authorization under the separate Ukraine-/Russia-Related Sanctions for parties sanctioned under multiple programs).

Also sanctioned were various oil traders, oilfield service providers, and Russian officials. Among the many parties designated by OFAC on January 10 were companies based in a host of third countries, including Hong Kong, the United Arab Emirates, Panama, Barbados, Serbia, Kyrgyzstan, Tajikistan, Kazakhstan, and Luxembourg.

Conclusion

Prior to OFAC’s January 10 announcement, the United States’s approach to targeting Russia’s energy industry had been circumspect, seeking to strike a balance between Russian deterrence and collateral economic consequences for friendly countries (historically) dependent on Russian energy. While the January 10 actions mark an unmistakable shift in U.S. strategy, the efficacy of this shift may depend, in large part, on how aggressively OFAC wields these authorities under the next administration.

Per new FAQ 1213, OFAC anticipates publishing regulations defining the term “energy sector of the Russian Federation economy” to include 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.
Per new FAQ 1216, OFAC anticipates publishing regulations defining petroleum services to include services related to the exploration, drilling, well completion, production, refining, processing, storage, maintenance, transportation, purchase, acquisition, testing, inspection, transfer, sale, trade, distribution, or marketing of petroleum, including crude oil and petroleum products, as well as any activities that contribute to Russia’s ability to develop its domestic petroleum resources, or the maintenance or expansion of Russia’s domestic production and refining.