Biden Takes Final Shot at Russia’s Energy

The United States on January 10, 2025, increased sanctions pressure against Russia by targeting the country’s oil production and exports. In coordination with the UK, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated hundreds of Russian oil tankers, many of which are part of the “shadow fleet” that Moscow uses to evade sanctions and other restrictions on Russian energy, as well as Russian oilfield service providers and Russian energy officials. Russia-based oil companies Gazprom Neft and Surgutneftegas, were designated by both the United States and the UK along with subsidiaries of the two firms.

Who else was sanctioned?

OFAC targeted more than 400 individuals, vessels, and entities operating in Russia’s energy sector pursuant to EO 14024, subjecting foreign financial institutions that conduct significant transactions with these entities to secondary sanctions risk. In addition to Gazprom Neft and Surgutneftegas, OFAC sanctioned Russia-based maritime insurance providers, including Ingosstrakh and Alfastrakhovanie, for facilitating Russia’s efforts to circumvent restrictions on its oil exports by insuring vessels that are part of Russia’s shadow fleet.

Opaque traders of Russian oil, such as UAE-based Black Pearl Energy Trading LLC, which has links to the Russian government and has worked with Russia-based AO Tsentr Ekspluatatsionnykh Uslug to move Russian oil, have been designated, as has another UAE-based company, Conmar DMCC that worked closely with Black Pearl to help Russia ship oil above the $60 per-barrel price cap.

In addition, Treasury sanctioned Sovcomflot—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. Not only does the company operate in the energy sector of the Russian federation, but it owns nearly 70 vessels that ship Russian energy worldwide. Sovcomflot was previously sanctioned pursuant to EO 14024 for operating in the marine sector of Russia’s economy and acting on behalf of the Russian government.

These sanctions have the potential to cause significant disruptions to Russia’s energy revenues.

Early Disruptions and Reactions

Russia in response to the new designations accused the United States of risking global energy instability.

Crude oil futures spiked after the designations against Gazprom Neft and Surgutneftegas were announced, and global benchmark Brent crude temporarily increased to above $81 per barrel – its highest price since August 2024. Sources in the Russian oil trade told the media that the latest designations will “severely disrupt Russian oil exports” to major buyers China and India, making them more expensive.

Indian refiners have stopped accepting oil from U.S.-designated tankers and entities. An official in India speculates that Russia could offer deeper discounts to India to comply with the $60 per-barrel price cap imposed on Russian oil by the G-7 countries in 2022.

Indian banks have begun blocking payments for Russian oil imports after sanctions were announced. India’s state-owned banks, State Bank of India and Punjab National Bank, are taking the most conservative approach regarding payments for Russian energy.

Chinese refiners are also seeking alternative supplies because of the new designations. The Shandong Port Group, which manages major ports on China’s east coast, has prohibited U.S.-designated tankers from entering its ports in the eastern Chinese province. Citing three traders as sources, Reuters noted that the ban could increase the shipping costs for independent refiners in Shandong that purchase discounted sanctioned crude from Iran, Russia, and Venezuela.

Serbia-based NIS AD Novi Sad—a Gazprom Neft subsidiary—was also targeted by the United States. NIS is Serbia’s main gas and oil company, and the country has until February 25^th to make arrangements to eliminate Russia’s ownership in the company. The Serbian government is working on plans to negotiate a buyout.

Russian energy giant Gazprom may slash the number of employees in its central office by nearly half, according to media reports. Deputy chair of Gazprom’s management committee, Elena Liyukhina, confirmed that the “challenges facing the Gazprom Group require … cost optimization at all levels of management and production processes.”

UK Sanctions Gazprom Neft and Surgutneftegaz

The UK, in coordination with the United States, also struck a blow against Russia’s ability to continue financing its war in Ukraine by sanctioning Gazprom Neft and Surgutneftegaz. The designations are based on the assessment that oil revenues are key to Russia’s wartime economy and that sanctioning the two Russian oil giants is a significant strike against Russia’s war chest.

The designations come on the heels of the UK’s sanctions on 20 vessels that transported more than four million barrels of Russian oil last year, bringing the total ships designated in Russia’s shadow fleet to nearly 100.

What should financial institutions and other firms do?

Transacting with sanctioned individuals, entities, or vessels can expose companies and banks to regulatory penalties and reputational damage. Failure to perform enhanced due diligence may result in significant fines. A reevaluation of your organization’s exposure to blocked ships and newly designated firms—especially if your firm transacts in the energy sector, shipping and freight, and maritime insurance and reinsurance spheres—are just two strategies that can help mitigate compliance risks, with others including:

• Screening vessels against sanctions lists
• Requiring documentation to ensure vessels are not engaging in deceptive practices, including ship-to-ship transfers and manipulation of the ship’s tracking systems
• Closely monitoring the involvement of vessels flagged and registered in jurisdictions with lax ship registration rules, such as Gabon, Barbados, the Cook Islands, Liberia, Belize, and others to avoid transactions with the Russian shadow fleet.

The media recently reported that Russia is re-registering its sanctioned vessels in less reputable jurisdictions, such as Tanzania, São Tomé, or Príncipe, to avoid detection. Barbados and Panama are both de-listing sanctioned ships carrying Russian oil, although Barbados will only remove U.S.-designated vessels if they’ve also been sanctioned by the UK. Checking the registration history of vessels involved in transactions linked to energy will help organizations avoid violations.