In an effort to reduce Russian energy revenues being used to fund the war against Ukraine, on January 10, 2025, the United States Department of the Treasury's Office of Foreign Assets Control (OFAC), issued a “determination” that subjects the energy sector of the Russian Federation to significant sanctions.  

In parallel, OFAC issued a determination that prohibits exportation of petroleum services to Russia from the United States or by U.S. persons wherever located. 

Designation of Russia's Energy Sector.  The determination pursuant to Section 1(a)(i) of Executive Order 14024, which took effect on January 10, 2025, designates the energy sector of the Russian Federation economy as a sanctioned sector.  As explained by OFAC in FAQ 1214 (issued in conjunction with the determination), not all persons that operate or that have operated in the energy sector are now sanctioned.  Rather, the designation enables the Secretary of the Treasury in consultation with the Secretary of State (or vice versa), to impose sanctions on any person, entity, or vessel determined to be operating, or to have been operating, in the Russian energy sector.  Any such person, entity, or vessel is now at sanctions risk, and contractual counterparties are on notice that transactions with or involving anyone in the Russian energy sector may be prohibited or blocked without warning.  

Pursuant to the authority thus granted, the Secretary of the Treasury immediately listed as Specially Designated Nationals (SDN) Russia's two leading energy companies (Gazprom Neft and Surgutneftegas), as well as numerous vessels, vessel owners, oil traders, oilfield service providers, insurance companies, and Russian energy officials.  Any property or interest in property of anyone listed as an SDN in the possession or control of a U.S. person, must be blocked (i.e., frozen).  Any property or interest in property of any entity owned 50% or more by one or more SDN-listed persons or entities must likewise be blocked.  The designations prohibit any U.S. person (including any person in the United States) from providing funds, goods, or services to, and from receiving funds, goods, or services from, any blocked person or entity.   

The term "energy sector" will be formally defined in forthcoming OFAC regulations. FAQ 1213 sets out the anticipated definition, which will 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."  

Prohibition on Petroleum Services.  The determination pursuant to Section 1(a)(ii) of Executive Order 14071, titled "Prohibition on Petroleum Services," will take effect at 12:01 am EST on February 27, 2025.  It generally prohibits "[t]he exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of petroleum services to any person located in the Russian Federation."   

The term "petroleum services" will be formally defined in forthcoming OFAC regulations. FAQ 1216 sets out the anticipated definition, which will 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. This would include services related to natural gas as a byproduct of oil production in Russia.”

General Licenses.  OFAC has also issued several general licenses (GL) that mitigate the immediate impact of the determinations.  Existing transactions that fall within the prohibitions may be wound down until either February 27 or March 12, 2025, depending on the Russian entity involved (GL 8L, 117, 118, 119).  Activities necessary for the health or safety of crews on sanctioned vessels are authorized until February 27, 2025, as are vessel repairs necessary to protect the environment (GL 120).  Petroleum services related to three major energy projects (the Caspian Pipeline Consortium, Tengizchevroil, and Sakhalin-2) are authorized until June 28, 2025 (GL 121).    

OFAC's latest salvo against the Russian Federation mandates heightened caution in dealing with the Russian energy sector.  Anyone planning or currently involved in such activity would be well-advised to consult with experienced sanctions counsel.  Katten stands ready to assist.