On March 8, 2022, President Biden issued an executive order prohibiting the import of certain Russian energy products into the U.S., including crude oil, liquefied natural gas, and coal. The Executive Order also prohibits new investments in the energy sector of the Russian Federation by U.S. persons, among other restrictions. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued guidance on the new restrictions, as well as a new General License 16 which authorizes certain energy product imports that had already been contracted for prior to the issuance date of the E.O.

Import Restrictions

The new E.O. prohibits, as of March 8, 2022, the importation into the U.S. of the following products that are of Russian Federation origin: “crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products.” Russian Federation origin is interpreted via OFAC FAQ 1019 to include: “goods produced, manufactured, or processed in the Russian Federation, excluding any Russian Federation origin goods that have been incorporated or substantially transformed into a foreign-made product.”

OFAC’s new General License 16 authorizes through 12:01 a.m. EST on April 22, 2022 all transactions otherwise prohibited by the new E.O. that are ordinarily incident and necessary to the importation into the U.S. of crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products of Russian Federation origin, provided that such imports were pursuant to written contracts or agreements entered into prior to March 8, 2022. Thus, if there is a pre-existing written contract entered into before March 8, 2022 to import Russian oil (or other listed products) into the U.S., then such imports will be permitted through 12:01 a.m. EST on April 22, 2022. Notably, General License 16 does not permit any transactions that would otherwise violate the Russian Harmful Foreign Activities Sanctions Regulations.

New Investment Restrictions

The new E.O. also prohibits “new investment” in the energy sector of the Russian Federation by a U.S. person. “New investment” is defined in OFAC FAQ 1019 as a “transaction that constitutes a commitment or contribution of funds or other assets for, or a loan or other extension of credit to, new energy sector activities (not including maintenance or repair) located or occurring in the Russian Federation beginning on or after March 8, 2022.”

OFAC FAQ 1019 also clarifies that a “loan or extension of credit” is:

• “[A]any transfer or extension of funds or credit on the basis of an obligation to repay, or any assumption or guarantee of the obligation of another to repay an extension of funds or credit, including: overdrafts, currency swaps, purchases of debt securities, purchases of a loan made by another person, sales of financial assets subject to an agreement to repurchase, renewals or refinancings whereby funds or credits are transferred or extended to a borrower or recipient described in the provision, the issuance of standby letters of credit, and drawdowns on existing lines of credit.”

In OFAC FAQ 1019, OFAC further advises that the term “energy sector” includes:

• “[T]he procurement, exploration, extraction, drilling, mining, harvesting, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, or transport of petroleum, natural gas, liquified natural gas [sic], natural gas liquids, or petroleum products or other products capable of producing energy, such as coal or wood or agricultural products used to manufacture biofuels, the development, production, generation, transmission or exchange of power, through any means, including nuclear, electrical, thermal, and renewable.”

Facilitation Risk

Finally, the new E.O. provides for facilitation risk, prohibiting any “approval, financing, facilitation, or guarantee by” a U.S. person of a transaction by a foreign person, where the transaction by that foreign person would be prohibited if performed by a U.S. person. In other words, U.S. persons cannot direct or collaborate with foreign persons to engage in transactions that would otherwise be unlawful for the U.S. person to engage in.

In summary, the U.S. continues to expand sanctions against Russia, this time with a focus on the domestic importation of Russian oil and other energy products, as well as new investments in the Russian energy sector. We will continue to closely monitor new developments in this space, particularly as U.S. legal requirements are rapidly evolving. If you have any question regarding U.S. sanctions laws, please contact Bruce Paulsen (212-574-1533), Michael Considine (212-574-1334), or Andrew Jacobson (212-574-1477) of Seward & Kissel’s Sanctions Practice Group.