EU publishes sixth sanctions package including the controversial oil embargo

After weeks of negotiations, the EU has finally agreed on the sixth package of sanctions following Russia's invasion of Ukraine on 24 February, 2022. The relevant regulations were published in the Official Journal of the EU on 3 June, 2022. The sixth package introduces the prohibition of direct and indirect purchase, import or transfer of crude oil and petroleum products originating in or exported from Russia falling under CN codes 2709 00 and 2710. It is also prohibited to provide technical assistance, brokering services, financing or financial assistance or any other services related to the prohibition to purchase, import or transfer listed crude oil or petroleum products. The sanction measure provides for a transitional period. The oil embargo has been in the air for some time, but it has not been without controversy given the dependence of certain Member States on Russian oil. Jikke Biermasz and Ferah Salman Taptik discuss the main features of the sanctions measure against Russian oil.  

On 3 June 2022, the Council published three new regulations[1] in the Official Journal of the EU. Regulation 2022/879 amends Regulation 833/2014 concerning restrictive measures in response to Russia's actions destabilising the situation in Ukraine. Regulation 2022/879 entered into force the day after its publication, i.e. on 4 June 2022. 

As we have come to expect, a consolidated version of Regulation 833/2014 containing the economic sanctions against Russia is not yet available; this regulation has been updated to include the fifth package of sanctions. For now we will have to use Amendment Regulation 2022/879.

Considerations on the oil embargo

Recitals 15 to 22 deal specifically with the oil embargo. Recital 15 explains that the (in)direct purchase, import or transfer into Member States of crude oil and certain petroleum products originating in or exported from Russia will be prohibited. The insurance and reinsurance of maritime transport is also banned. Appropriate transitional periods are provided for, however. What is striking is that the not unimportant words from Recital 15 'into Member States' seem to be missing from the first paragraph of the new Article 3m. However, Regulation 2022/879 clearly introduces an import ban and the embargo therefore covers purchases, imports and supplies of Russian oil into the Member States of the EU.

The ban on imports of crude oil is, until further notice by the Council, temporarily not applicable to the supply into Member States of crude oil by pipeline from Russia. This exception is necessary, as explained in recital 16, due to the geographical situation of several Member States, which are specifically dependent on the supply of crude oil by pipeline from Russia. As no viable alternative supply is available in the short term, it is not feasible to immediately ban the supply of crude oil by pipeline from Russia too. In the meantime, however, Member States should make every effort to obtain alternative supplies so that Russian crude oil delivered by pipeline can also be subject to the ban as soon as possible. Please note that there that onward transfers, transports and re-sales of the crude oil supplied by pipeline is restricted. This also applies, subject to a transitional period, to petroleum products derived from the crude oil supplied by pipelines from Russia (17). Czechia will be given a little more time because of its dependence.

For Bulgaria, because of its special geographical exposure, a special derogation on the import of marine crude oil and petroleum products is provided for periodically. Croatia is granted a special status with regard to deliveries of vacuum gas oil (18).

The majority of crude oil, bituminous crude oil and non- crude oil products originating in or exported from Russia are thus banned. According to President of the European Council, Charles Michel, in a tweet on Monday, 30 May, 2022, around two-thirds of Russian oil imports to the EU would be banned: 'Agreement to ban export of Russian oil to the EU. This immediately covers more than 2/3 of oil imports from Russia, cutting a huge source of financing for its war machine'.[2]

However, the principle of free transit is respected (21). The prohibition does not affect the purchase, import or transfer of oil products from other third countries which are merely transiting through Russia. In that case, it must be established that both the goods are not of Russian origin and that the owner is not Russian. Member States are instructed to conduct the necessary controls to ensure that the transit of goods from third countries through Russia does not result in circumvention of the oil embargo. Recital 22 already warns that if in due course there is sufficient evidence that imports into the EU of petroleum products from third countries result in circumvention of the ban, imports from the third countries involved in such circumvention could and should also be subject to an embargo.

Ban on the purchase, import and transfer of Russian oil

Regulation 2022/879 adds a new provision, Article 3m, to Regulation 833/2014. It consists of 10 paragraphs. Accompanying the prohibition of Article 3m is a new Annex XXV to Regulation 833/2014. This is a short list of crude oil and petroleum products referred to in Article 3m and Article 3n of Regulation 2022/879. The list in Annex XXV contains two CN commodity codes:

• 2709 00 with the description 'Petroleum oils and oils obtained from bituminous minerals, crude'; and,
• 2710 described as ‘Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70 % or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations; waste oils’’.

The core of the import ban is formed by the first paragraph of Article 3m, which reads:

‘1. It shall be prohibited to purchase, import or transfer, directly or indirectly, crude oil or petroleum products, as listed in Annex XXV, if they originate in Russia or are exported from Russia.’

As we have already noted, it is striking that the words 'into Member States' are missing in this first paragraph. Recital 15 of Regulation 2022/879 does, however, clearly state that it concerns an import ban, i.e. (our emphasis added): '(15) […] a prohibition on the purchase, import or transfer into Member States'. [3]

The purchase, import or transfer of the listed crude oil and petroleum products originating in or exported from Russia are prohibited, but, as indicated, the prohibition does not apply if the products come from a third country and are only being loaded in, departing from or transiting through Russia, provided that both the origin and the owner of those goods are non-Russian. It goes without saying that this entails a risk of circumvention.

Services related to the purchase, import and transfer of Russian oil

Pursuant to paragraph 2, the (in)direct provision of a whole range of services is also prohibited. Technical assistance, brokering services, financing or financial assistance, concepts which are defined in Article 1c, 1d and 1o of Regulation 833/2014 respectively, as well as the provision of 'any other service' (undefined) in connection with the prohibition in Article 3m(1), are no longer permitted. We assume that a.o. the services of logistics service providers in the EU oil ports fall under the 'any other service'.

Paragraph 3: In what cases do the prohibitions of paragraphs 1 and 2 not apply?

As widely reported in the press, various exceptions still apply for the time being. The third paragraph of Article 3m makes clear in which cases the prohibitions laid down in the paragraphs 1 and 2 do not (yet) apply. This has to do with the transitional period and respect for the principle of free transit of oil products originating in third countries of non-Russian owners. To summarize:

1. Until 5 December 2022, one-off transactions for near-term delivery concluded and executed before that date are permitted. It shall also apply, until 5 December, 2022, to the execution of contracts for the purchase, import or transfer of goods falling under CN code 2709 00 (crude petroleum oils and oils obtained from bituminous minerals) concluded before 4 June, 2022 or to any additional contracts necessary for the execution of such contracts concluded prior to 4 June 2022. This is subject to the condition that the Member States concerned must notify the Commission of such contracts no later than 24 June 2022 and must also notify the Commission within 10 days of completion of a one-off transaction for near-term deliveries.
2. A similar provision applies to products falling under CN commodity code 2710 (i.e. petroleum oils and oils obtained from bituminous minerals other than crude; for specification see above), except that a slightly longer transition period applies, i.e. until 5 February 2023. Again, contracts must be dated before 4 June 2022, the date on which Regulation 2022/879 entered into force.
3. Oil products originating in third countries may enter the EU only if they are loaded in, departing from or transiting through Russia, provided that both the origin and the owner of those goods are non-Russian.
4. Finally, the prohibitions in paragraphs 1 and 2 do not, for the time being, apply to crude oil falling under CN code 2709 00 which is delivered by pipelines from Russia into Member States. This will be the case until the Council decides otherwise.

Other exceptions: interrupted supply by pipeline, Bulgaria and Croatia      

Paragraph 4 allows for an exceptional temporary derogation from the prohibition on the entry of seaborne crude oil in the event of interruption of the supply of crude oil by pipeline to a landlocked EU Member State for reasons outside the control of that Member State. The fact that Bulgaria has a longer period, until 31 December, 2024, to execute contracts concluded before 4 June, 2022 for the supply of seaborne crude oil follows from paragraph 5. Paragraph 6 creates a specific exemption for Croatia. The competent authorities of this country may until 31 December 2023 authorise the purchase, import or transfer of vacuum gas oil falling under CN 2710 19 71 originating in or exported from Russia. Importantly, goods imported under the derogations of the paragraphs 5 and 6 specifically created for Bulgaria and Croatia may not subsequently be resold to buyers in another Member State or in a third country (paragraph 7).

Crude oil supply falling under 2709 00 by pipeline

As indicated, the prohibitions in Article 3m(1) and (2) do not, for the time being, apply to supplies of crude oil by pipelines from Russia. That is so until the Council decides otherwise. However, this crude pipeline oil certainly does not have free rein in the EU, as paragraph 8 shows.

The transfer or transport of crude oil supplied by pipeline from Russia to Member States to other Member States or to third countries is prohibited. Nor may it be sold to purchasers in other Member States or in third countries. In short, the oil must remain within the Member State and may not be traded or sold to buyers from other Member States or third countries. Consignments and containers containing this crude pipeline oil will for this purpose be clearly marked "REBCO: export prohibited".

By 5 February 2023: also no more transfer, transport or sale of petroleum products produced from crude pipeline oil 

Petroleum products falling under CN commodity code 2710 made from the crude oil falling under commodity code 2709 00 delivered by pipeline from Russia may for the time being continue to be transferred in the Union and to third countries. However, this will no longer apply from 5 February 2023. As from that date, the transfer and transport of those products to another Member State or third country and the sale to buyers in other Member States and third countries will no longer be permitted (paragraph 8). Czechia has a temporary derogation.

Purchases in Russia for essential needs and humanitarian projects

Paragraph 9 of Article 3m states that the prohibition in paragraph 1 does not apply to purchases in Russia that are necessary to meet the essential needs of a buyer in Russia or of humanitarian projects in Russia.    

Reporting obligations of Member States

The tenth paragraph of Article 3m requires Member States to notify the Commission of the quantities of crude oil imported by pipeline by 8 June, 2022 for the first time, and subsequently every three months thereafter. 

Ban on the provision of services in respect of the transport of Russian oil to third countries

As part of the sixth sanctions package, Article 3n is also inserted into Regulation 833/2014. This provision prohibits the provision of (in)direct technical assistance, brokering services or financing or financial assistance related to the transport of crude oil or oil products listed in Annex XXV originating in or exported from Russia to third countries. This prohibition expressly includes ship-to-ship oil transfers. Also with regard to Article 3n, (temporary) exemptions have been created for oil originating in third countries and during an appropriate transitional period.

Ploum   

Ploum's Customs, Trade and Logistics team specializes, among other things, in export control and international sanctions. In addition, Ploum has a broad-based sector team Energy, in which various fields of expertise relevant to clients in the energy sector work together. Should you have any questions about the oil embargo or other sanctions against Russia, please contact Jikke Biermasz. For other and general questions to our Energy team, please contact Stephan Sluijters.