This year, the U.S. government has implemented a wave of new sanctions targeting Russia in response to the ongoing crisis in Ukraine. Among the growing web of restrictions on doing business with Russia, the Commerce Department’s recent Russian oil industry sanctions have particularly far-reaching implications for companies involved with Russia’s energy sector.
These Commerce Department sanctions are intended to make it tough for Russian energy companies to develop longer-term, technically demanding energy projects. They prohibit the export, reexport, or in-country transfer of certain items without a license when the person either:
- Knows or is informed that the item will be used directly or indirectly in exploration for, or production of, oil or gas in Russian deepwater locations (greater than 500 feet), Arctic offshore locations, or Russian shale formations; or
- Is unable to determine whether the item will be used in these types of projects in Russia.
The controlled items include commodities, software, and technology identified in the following eight Export Control Classification Number (“ECCN”) entries on the Commerce Control List: 0A998 (a newly-created ECCN covering specific oil and gas exploration items, such as seismic or other types of data to assist in oil exploration and hydraulic fracturing items), 1C992, 3A229, 3A231, 3A232, 6A991, 8A992, and 8D999 (another new ECCN covering software specially designed for the operation of unmanned vessels used in the oil and gas industry).
Notably, the list of controlled items also includes several EAR99 items that would not normally require a license for almost all destinations and end-uses. These items, somewhat unusually, are identified by Schedule B numbers (see new Supp. No. 2 to 15 C.F.R. Part 746) and include line pipe, oil well drill pipe, oil well casing/tubing, containers for compressed or liquefied gas, rock drilling or earth boring tools, oil well or oil field pumps, industrial gas cleaning equipment, and boring or sinking machinery.
As a result, companies active in Russia’s energy sector that may not previously have dealt with Commerce licensing issues now must be especially alert to both the items that will be shipped to Russia and the items’ specific end-uses. And companies should not count on receiving a license from Commerce, as its licensing policy – at least for projects involving oil (gas is not specifically called out) – is a presumption of denial.
This is sure to present some compliance challenges, particularly for those companies that are deeply entrenched in Russia’s energy sector. The Russia sanctions, including those that apply to Russia’s oil and gas industry, likely will continue to evolve as the situation in Ukraine unfolds, so stay tuned.