US aims to tighten price cap enforcement by targeting non-G7 shipowners

The US has targeted foreign tanker owners in its first clampdown on breaching the Russian oil price cap, a move designed to limit Russia's petroleum exports facilitated by non-G7 firms using Western marine services, sanctions specialists said.

Since Dec. 5, the G7 and its allies have banned service providers subject to their jurisdictions from facilitating seaborne Russian crude exports unless the barrels are sold at $60/b or less. Similar restrictions have been placed on Russian oil products since Feb. 5 with different thresholds.

While the previous G7 price cap guidelines have focused on how Western firms can stay compliant, the US Treasury on Oct. 12 sanctioned the UAE-based Lumber Marine SA and Turkey-based Ice Pearl Navigation for owing tankers that transported Russian crude above the price cap using US services.

"We knew that the US government had been warning entities in some countries of the risk of sanctions for helping Russia evade the price caps," said Jonathan Epstein, a partner of law firm Holland & Knight.

"I view these [sanctions] designations as a 'shot across the bow' to the maritime industry," he told S&P Global Commodity Insights.

The US also sanctioned Lumber Marine's Suezmax tanker SCF Primorye and Pearl Navigation's Aframax Yasa Golden Bosphorus for breaching the price cap. However, the US service providers were not identified for any enforcement actions.

The US Treasury Department did not respond to an email seeking further comments.

Byron McKinney, trade finance director at S&P Global Market Intelligence, said sanctioning the SCF Primorye was "a token gesture" as the tanker is ultimately controlled by Russian state-owned carrier Sovcomflot, already targeted by various Western sanctions separately.

"The Golden Bosphorus is different. She does not have a Russian ownership connection but...the wider fleet under management by the [ship's] group owner is large," McKinney said.

"[This] could be taken as a warning to owners operating and hauling Russian cargoes who have large fleets in terms of number and tonnage capacity from making persistent Russian port calls for cargo above the price cap."

Due diligence

The Golden Bosphorus' manager, Yasa Tanker Management, said on its website that it has a fleet of 14 tankers totaling 1.5 million dwt. In an emailed statement, the company said it carried out all sanctions checks and due diligence "very properly" and denied any wrongdoing.

The sanctioned ship remains covered by Britannia P&I Club, part of the International Group of P&I Clubs, which dominates the marine protection and indemnity insurance market, according to the company.

"All voyages carried out with IG and G7 countries rules and regulations and with price cap attestation letter," Yasa said. "We...never had nothing to do with any illegal activities."

Britannia confirmed the ship is under its coverage in its website. The insurer said it has reached out to the US government for further action.

According to Treasury, the Golden Bosphorus transported ESPO crude priced above $80/b, and the SCF Primorye carried Novy Port crude priced above $75/b.

The Golden Bosphorus lifted 732,000 barrels of ESPO on Dec. 10, the same amount on Dec. 30, 832,000 barrels on Feb. 6, and 732,000 barrels April 4 for shipments to China, S&P Global Commodities at Sea data shows.

Platts, part of S&P Global, has assessed front-month loading ESPO crude (Singapore) on an FOB Kozmino basis above $60/b in all sessions since Dec. 5, except for on March 20.

The SCF Primorye loaded nearly 1.1 million barrels of Novy Port on Dec. 13 for a shipment to India and 968,000 barrels on June 30 for China, according to CAS.

New guidance

The US sanctions came as market players questioned the price cap regime's effectiveness, with Russian government data showing the country's oil and gas revenues climbed to Rb739.9 billion ($7.371 billion) in September, the second highest this year.

Russia's seaborne crude loadings hit a three-month high of 3.37 million b/d in September as international crude prices increased, but around 40% of the shipments were still facilitated by Western services, according to S&P Global data.

As part of the clampdown, the price cap coalition -- which also includes Australia and the EU -- also issued a new advisory on how the oil shipping industry can comply with sanctions rules.

The advisory offers seven recommendations that "industry stakeholders" can adopt to reduce their exposure to possible risks, including requiring appropriately capitalized P&I insurance; continually broadcasting Automatic Identification Systems; monitoring high-risk ship-to-ship transfers; and reporting ships that trigger concerns.

Overall, this suggests that Treasury wants ship owners, operators, insurers, and classification societies to enhance due diligence based on existing rules, Epstein said.