US Imposes Significant Export Restrictions on Russian Oil and Gas Field
The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) added the Yuzhno-Kirinskoye Field, a Russian oil and gas field, to the Entity List on August 7, 2015. The action effectively prohibits all persons from exporting any U.S.-origin goods, or certain foreign goods-made goods incorporating U.S.-origin content, for use in the field.
The Entity List identifies non-U.S. persons – including businesses, research institutions, government and private organizations, individuals, and other types of legal persons – that are subject to specific export license requirements for engaging in conduct contrary to U.S. foreign policy interests. The listing is the first time a location has been added to the Entity List. The measure is also an extension of the U.S. Department of the Treasury’s Office of Foreign Assets Control’s (“OFAC”) sectoral sanctions, and prior BIS measures, targeting the Russian energy sector.
It has been widely reported that the listing may impact a potential partnership between Royal Dutch Shell PLC and OAO Gazprom. The measure also comes at a very inopportune time for the Russian oil industry generally, as USD-denominated oil revenues per barrel have decreased by almost 60% over the past two years due to the global fall in oil prices. Although this situation is somewhat mitigated by increased Ruble revenues (due to the fall in the Ruble exchange rate) and increased production, the Russian oil sector is clearly under financial pressure.
According to BIS’ Final Rule, “exports, reexports, and transfers (in-country) of all items subject to the [Export Administration Regulations (“EAR”)]” to the Yuzhno-Kirinskoye Field present “an unacceptable risk” of diversion to activities that are targeted by pre-existing measures maintained by BIS and OFAC directed at Russia’s energy sector. As a result of the listing, all exports, reexports and transfers (in-country) of all items subject to the EAR to the Yuzhno-Kirinskoye Field require a license from BIS – and any such license requests will be treated with a presumption of denial. The action effectively prohibits all persons (e.g., U.S. and non-U.S. persons) from exporting or otherwise transferring U.S.-origin items (wherever located), certain foreign-origin items incorporating U.S. content or that are the direct product of certain U.S. technology or software, or other items that transit through the United States to the field.
Companies should remain vigilant in screening all parties to contemplated transactions involving Russia or Ukraine for connections to the Yuzhno-Kirinskoye Field or any other individuals or entities identified on the Entity List and the Specially Designated Nationals and Blocked Persons List. In particular, companies engaged in business involving the energy sector of the Russian economy should remain proactive in assessing their exposure to potential restrictions under US export control and sanctions laws.
How Dechert Can Assist
Sanctions and export controls remain important foreign policy tools used by the United States to address conflicts around the world. As such, these programs remain under constant review. Dechert will remain active in providing alerts. Dechert also can assist with providing risk assessments regarding current and prospective international trade risk, and assist with obtaining government authorizations.