March 8, 2022 saw major announcements on new sanctions on the Russian Federation and/or Belarus from the United States, European Union and the United Kingdom and a continued exodus of major oil companies from Russian involvement.
In the United States, President Biden announced new actions in the form of an Executive order which bans –
“The importation into the United States of Russian crude oil and certain petroleum products, liquefied natural gas, and coal.
“* * *
“New U.S. investment in Russia’s energy sector, which will ensure that American companies and American investors are not underwriting Vladimir Putin’s eff orts to expand energy production inside Russia.
Americans will also be prohibited from financing or enabling foreign companies that are making investment to produce energy in Russia.”
The Executive Order reads in full –
“By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.), and section 301 of title 3, United States Code,
“I, JOSEPH R. BIDEN JR., President of the United States of America, hereby expand the scope of the national emergency declared in Executive Order 14024 of April 15, 2021, and relied on for additional steps taken in Executive Order 14039 of August 20, 2021, finding that the Russian Federation’s unjustified, unprovoked, unyielding, and unconscionable war against Ukraine, including its recent further invasion in violation of international law, including the United Nations Charter, further threatens the peace, stability, sovereignty, and territorial integrity of Ukraine, and thereby constitutes an unusual and extraordinary threat to the national security and foreign policy of the United States. Accordingly, I hereby order:
“Section 1. (a) The following are prohibited:
“(i) the importation into the United States of the following products of Russian Federation origin: crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products;
“(ii) new investment in the energy sector in the Russian Federation by a United States person, wherever located; and
“(iii) any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.
“(b) The prohibitions in subsection (a) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or license or permit granted prior to the date of this order.
“Sec. 2. (a) Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set forth in this order is prohibited.
“(b) Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited.
“Sec. 3. Nothing in this order shall prohibit transactions for the conduct of the official business of the Federal Government or the United Nations (including its specialized agencies, programs, funds, and related organizations) by employees, grantees, or contractors thereof.
“Sec. 4. For the purposes of this order:
“(a) the term ‘entity’ means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization;
“b) the term ‘person’ means an individual or entity; and
“(c) the term ‘United States person’ means any United States citizen, lawful permanent resident, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.
“Sec. 5. The Secretary of the Treasury, in consultation with the Secretary of State, is hereby authorized to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by IEEPA, as may be necessary to carry out the purposes of this order. The Secretary of the Treasury may, consistent with applicable law, redelegate any of these functions within the Department of the Treasury. All executive departments and agencies of the United States shall take all appropriate measures within their authority to implement this order.
“Sec. 6. (a) Nothing in this order shall be construed to impair or otherwise affect:
“(i) the authority granted by law to an executive department or agency, or the head thereof; or
“(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.
“(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.
“(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
“JOSEPH R. BIDEN JR. “THE WHITE HOUSE,
“March 8, 2022.”
The new prohibitions do not prevent honoring existing contracts in the next 45 days. President Biden reviewed that the steps were taken after consultations with allies realizing that many allies were not in a position to take identical action at the moment reflecting very different situations in terms of domestic production of oil and gas and dependency on imports from Russia. (“We’re moving forward on this ban, understanding that many of our European Allies and partners may not be in a position to join us. The United States produces far more oil domestically than all of European — all the European countries combined. In fact, we’re a net exporter of energy. So we can take this step when others cannot. But we’re working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russian energy as well.”).
The United Kingdom announced that it would phase out imports of oil from Russia during 2022. (“UK prime minister Boris Johnson’s government said it would phase out the import of Russian oil by the end of the year. Kwasi Kwarteng, UK business secretary, said the British government would organise an ‘orderly transition’ away from Russian oil imports. But Rishi Sunak, UK chancellor, told a cabinet meeting that consumers would pay a price for the ban, with lower-income households particularly hard hit. The UK is less dependent on Russia than much of mainland Europe, with Russian supplies making up 8 per cent of overall oil imports into the UK. Johnson is expected to make a statement later this week on reducing British imports of Russian gas.”).
The European Commission announced a proposed ambitious program to diversify gas supplies and expand renewables to achieve a potential two- thirds reduction in dependence on Russian oil and gas by the end of 2022 for the European Union. The program, RePowerEU, was announced on March 8th and contains a number of documents. The opening statement of Executive Vice-President Timmermans is copied below in part.
“Opening remarks by Executive Vice-President Timmermans
“* * *
“It is abundantly clear that we are too dependent on Russia for our energy needs. It is not a free market if there is a state actor willing to manipulate it.
“The answer to this concern for our security lies in renewable energy and diversification of supply.
“Renewables give us the freedom to choose an energy source that is clean, cheap, reliable, and ours. And, instead of continuing to fund fossil fuel imports and fund Russian oligarchs, renewables create new jobs here in Europe.
“With the plan we outline today, the EU can end its dependence on Russian gas and repower Europe. Fit for 55, once implemented, will reduce the EU’s total gas consumption by 30% by 2030. That’s 100 billion cubic meters of gas we will no longer need.
“Now, we will take it to the next level.
“By the end of this year, we can replace 100 bcm of gas imports from Russia. That is two-thirds of what we import from them. This will end our over-dependency and give us much needed room to maneuver. Two thirds by the end of this year.
“It is hard, bloody hard. But, it is possible, if we are willing to go further and faster than we have done before.
“REPowerEU is our plan to make Europe independent from Russian gas.
“It is based on two tracks:
“First: we will diversify supply and bring in more renewable gases.
“With more LNG and pipeline imports, we can replace 60 bcm of Russian gas within the next 12 months.
“By doubling sustainable production of biomethane we can replace another 18 bcm, using the Common Agricultural Policy to help farmers become energy producers.
“We can also increase the production and import of renewable hydrogen. A Hydrogen Accelerator will develop integrated infrastructure and offer all Member States access to affordable renewable hydrogen. 20 million tonnes of hydrogen can replace 50 bcm of Russian gas.
“We will also start replacing natural gas with renewable gases. This, in sum, is the first pillar of REPowerEU.
“In parallel, we must accelerate our clean energy transition. Renewables make us more independent, and they are more affordable and reliable than the volatile gas market.
“So, we need to put millions more photovoltaic panels on the roofs of our homes, businesses, and farms. We must also double the installation rate of heat pumps over the next 5 years.
“This is low-hanging fruit. By the end of this year, almost 25% of Europe’s current electricity production could come from solar energy.
“In addition to this, we need to speed up permitting procedures to grow our on- and offshore wind capacity, and rollout large-scale solar projects. This is a matter of overriding public interest.
“Some of these changes will not happen overnight, and that’s why we also need to prepare for next winter.
“By October, gas storage facilities in the EU must be filled up to 90% capacity. And the Commission is ready to support joint procurement of gas.
“Finally, and most importantly, we need to protect those who are struggling to pay their energy bills.
“Our plan today proposes several ways to help the most exposed households and businesses.
“Kadri will go through these in more detail.
“To conclude, RePowerEU is our plan to break our dependency on Russian gas, and to find freedom in our energy choices.
“We can do it, and we can do it fast.
“All we need is the courage and grit to get us there. If ever there was a time to do it, it is now.
While Australia does not appear to have announced a ban on imports of Russian oil into Australia, its two oil companies have announced cessation of procurement or lack of procurement from Russia.
While the U.S. Congress has bills pending before both the House of Representatives and the Senate that would remove normal trade relations status on Russia (i.e., end most favored nation treatment) and instruct the US Trade Representative to seek suspension or removal of Russia from the WTO, press reports indicate that with President Biden’s action on Russian oil, gas and coal, the Administration has asked for a different piece of legislation from Congress, one that wouldn’t (at least at present) address normal trade relations or Russia in the WTO. While Canada has suspended normal trade relations on goods from Russia and Belarus, U.S. inaction presumably reflects the focus of the U.S. and European allies on other sanction issues while seeking internal support for the step of suspending normal trade relations.
On March 9, 2022, the EU announced additional financial sanctions of Belarus and an expansion of individuals being sanctioned in Russia. Most of the press release is copied below.
“The European Commission welcomes today’s agreement of Member States to adopt further targeted sanctions in view of the situation in Ukraine and in response to Belarus’s involvement in the aggression. In particular, the new measures impose restrictive measures on 160 individuals and amend Regulation (EC) 765/2006 concerning restrictive measures in view of the situation in Belarus and Regulation (EU) 833/2014 concerning Russia’s actions destabilising the situation in Ukraine. These amendments create a closer alignment of EU sanctions regarding Russia and Belarus and will help to ensure even more effectively that Russian sanctions cannot be circumvented, including through Belarus.
“For Belarus, the measures introduce SWIFT prohibitions similar to those in the Russia regime, clarify that crypto assets fall under the scope of “transferable securities” and further expand the existing financial restrictions by mirroring the measures already in place regarding Russia sanctions.
“In particular, the agreed measures will:
“Restrict the provision of SWIFT services to Belagroprombank, Bank Dabrabyt, and the Development Bank of the Republic of Belarus, as well as their Belarusian subsidiaries.
“Prohibit transactions with the Central Bank of Belarus related to the management of reserves or assets, and the provision of public financing for trade with and investment in Belarus.
“Prohibit the listing and provision of services in relation to shares of Belarus state-owned entities on EU trading venues as of 12 April 2022.
“Significantly limit the financial inflows from Belarus to the EU, by prohibiting the acceptance of deposits exceeding €100.000 from Belarusian nationals or residents, the holding of accounts of Belarusian clients by the EU central securities depositories, as well as the selling of euro- denominated securities to Belarusian clients.
“Prohibit the provision of euro denominated banknotes to Belarus.
“For Russia, the amendment introduces new restrictions on the export of maritime navigation and radio communication technology, adds Russian Maritime Register of Shipping to the list of state-owned enterprises subject to financing limitations and introduces a prior information sharing provision for exports of maritime safety equipment.
“In addition, it also extends the exemption relating to the acceptance of deposits exceeding €100.000 in EU banks to Swiss and EEA nationals.
“Finally, the EU confirmed the common understanding that loans and credit can be provided by any means, including crypto assets, as well as further clarified the notion of “transferable securities”, so as to clearly include crypto-assets, and thus ensure the proper implementation of the restrictions in place.
“Furthermore, the amendment introduces new restrictions.
“Furthermore, an additional 160 individuals have been listed in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.
“The listed individuals include:
“- 14 oligarchs and prominent businesspeople involved in key economic sectors providing a substantial source of revenue to the Russian Federation – notably in the metallurgical, agriculture, pharmaceutical, telecom and digital industries -, as well as their family members.
“- 146 members of the Russian Federation Council, who ratified the government decisions of the ‘Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the Donetsk People’s Republic’ and the ‘Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the Luhansk People’s Republic’.
“Altogether, EU restrictive measures now apply to a total of 862 individuals and 53 entities.”
As Russia continues to escalate its hostilities in Ukraine, the U.S., EU, G7 and other countries continue to make clear that there will be major costs imposed on Russia for the unprovoked war. While many of the sanctions are financial, some are trade focused. The move away from Russian oil and gas and the restrictions on the export to Russia of materials and technology for the sector will significantly reduce Russian gross domestic product over time with so much of the economy currently tied to oil, gas and coal.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
To read the full commentary from Current Thoughts on Trade, please click here.