Price Cap on Crude and Petroleum Cargoes from Russia
Following the invasion of Ukraine by Russia in February 2022 the G7 together with the European Union met in June at a summit in Schloss Elmau, Germany where the imposition of a price cap on the sale of Russian oil was addressed. The idea was to place a limitation on the price at which Russia could sell crude oil and refined petroleum products, thereby allowing continued trade, but restricting income to Russia.
The concept was developed by the Price Cap Coalition (the G7, European Union, and Australia) during the year culminating in the imposition of a price cap which came into effect on 5th December 2022. This first price cap was in relation to crude oil (CN 2709) and set at $60 per barrel. This was followed on 5th February 2023 with a price cap on CN 2710 cargoes being; high value refined petroleum products (such as diesel oil or gasoline) at $100 per barrel, and $45 per barrel for low value refined petroleum products (such as fuel oil). A full list of the CN 2710 products subject to the price cap can be found here Guidance on Russian oil price cap (europa.eu) at pages 4-6.
Regulations were incorporated into the legislation of the G7 countries (Canada, Japan, UK, USA, Italy, France, Germany) and the European Union, prohibiting the provision of services relating to the transport of Russian crude unless carried at or within the price cap.
Subject to wind-down periods, which have now expired, any shipowner entered with an International Group Club or subject to the Regulations of the G7 or EU and carrying Russian Crude oil or Petroleum products must do so at or within the price cap.
Any vessel carrying a price cap cargo is required to provide an Attestation warranting compliance with the Price Cap policy. The EU regulation 833/2014 dealing with sanctions was amended in February 2024 to support the implementation of and disrupt circumvention of the Price Cap by reducing opportunities for those using opaque shipping costs to disguise oil purchased above the Cap. These amendments require that such Attestations are to be provided by the Member to the Association for each voyage and within 30 days of the vessel having loaded. Further information can be found here: Price Cap Attestations - Important notice (westpandi.com). Members themselves should receive attestations from their charterers or other contractual counterparts prior to loading. The EU guidance provides that “Shipowners are required to do the necessary due diligence such that it would be reasonable to rely on the attestation they have been provided by their customer”.
The regulation has also introduced a requirement that itemised price information for ancillary costs such as insurance and freight, must be shared upon request throughout the supply chain by those entities with access to price information. This information is also to be provided the shipowners’ P&I Clubs on request.
The EU has tabulated the key players involved in the oil trading chain and which can be found in the EU FAQs Guidance on Russian oil price cap (europa.eu) at pages 20-23. The itemised price information is to be shared by actors with access to that information, such as traders and charterers in Tier 1 or Tier 2. Actors down the supply chain, such as shipowners and insurers in Tier 3A, should collect and share the itemised cost information from actors closer to the origin of such information, when requested. Competent authorities of Member States can request that information from any actor, regardless of their place in the supply chain, at any time, in order to verify compliance with the price cap mechanism.
In order to engage in the lawful carriage of Russian oil cargoes an insured shipowner or charterer must comply fully with the requirements of all Price Cap Schemes, conduct appropriate due diligence and adhere fully to the Attestation process. Clubs are required to withdraw cover in circumstances where there are reasonable grounds to suspect that the Price Cap Attestations provided to a shipowner or charter are false and/or where the cargo is sold after the voyage has commenced at a price greater than the Price Cap. Further, those Clubs subject to UK and US law are also obliged to notify their respective regulatory bodies of any suspected breach of the Price Cap scheme.
Further details can be found here No.15 2022/2023 - (UPDATED) Sanctions - The Price Cap on Russian Oil (westpandi.com) on the Price Cap, here No.19 2023/24 - Russian sanctions update (westpandi.com) and here No.3 2024/25 - Russian Sanctions - requirement to provide voyage attestations and Coalition alert (westpandi.com) on Attestations, and here No.2 2022/2023 - Reporting of vessel calls to Russia and transiting Russian territorial waters (westpandi.com) on reporting of a vessel in Russian waters.