US bans imports of Russia energy products; bans exports of oil refinery equipment to Russia

Executive summary

On 8 March 2022, United States (US) President Joseph R. Biden announced an Executive Order (EO) on Prohibiting Certain Imports and New Investments With Respect to Continued Russian Federation Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine, in response to Russia’s on-going invasion of Ukraine. The EO specifically prohibits the importation of Russian energy products into the US, as well as any US investment in the Russian energy sector along with any financing or facilitation of such transactions by US persons. The EO was accompanied by a new rule from the Bureau of Industry and Security (BIS) that restricts the export, reexport and transfer (in-country) of critical oil refining equipment to Russia absent an approved license.¹

Detailed discussion

The EO² announced on 8 March is an expansion of the national emergency declared in EO 14024 of 15 April 2021, Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation.³

Section 1(a) of the new EO prohibits: (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.

According to the EO, the action was necessary as Russia’s invasion of Ukraine “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.”

In the accompanying fact sheet, the President acknowledged that the ban on Russian oil was not taken in concert with other allies, but that this action was needed to impose immediate and severe economic costs on Russia.⁴ According to the fact sheet, the US imported nearly 700,000 barrels per day of crude oil and refined petroleum products from Russia last year, and this step will deprive Russia of billions of dollars in revenues from US drivers and consumers annually. At the same time, President Biden acknowledged that his administration will be taking active steps to limit the impact of this action on domestic and global energy markets.

In conjunction with the EO, the BIS, under the Department of Commerce, promulgated a rule entitled, The Expansion of Sanctions Against the Russian Industry Sector Under the Export Administration Regulations (EAR).5 The rule is effective 3 March 2022 and adds a new prohibition under the EAR’s preexisting Russian Industry Sector Sanctions contained in 15 CFR Section 746.⁵ that targets the oil refinery sector of Russia. The changes made by this rule are intended to further limit the productivity of Russia’s oil sector and will be implemented by restricting the export, reexport and transfer (in-country) of equipment needed for oil refining by imposing a license requirement.⁶ A list of equipment subject to the new license requirement is provided in Supplement No. 4 to Part 746 of the EAR and items are identified by Harmonized Tariff Schedule (HTS)-6 code and Schedule B number. Applications for the export, reexport, or transfer (in-country) of any item identified in Supplement No. 4 will be reviewed by BIS under a policy of denial unless necessary for a “health and safety reason,” in which case, the application will be reviewed under a case-by-case review policy.⁷ Furthermore, only license exception GOV (Section 740.11(b)) is available to exporters to overcome the new license requirement.⁸

Supplement No. 4 to Part 746—HTS Codes and Schedule B Numbers That Require a License for Export, Reexport, and Transfer (In-Country) to or Within Russia Pursuant to Section 746.5(a)(1)(ii)

Actions for businesses

Companies involved in the importation of any energy-related products from Russia into the US should begin mapping their complete, end-to-end supply chain to fully understand the extent of products impacted and review alternative sourcing options.

Companies involved in the export, reexport and transfer (in-country) of items to Russia are encouraged to identify the possible impact of this BIS rule to avoid potential violations. Immediate actions for such companies should include:

• Evaluating one’s export compliance program to ensure it properly addresses export control and sanctions requirements, especially recent changes to US rules

• Understanding and determining the export licensing requirements applicable to the company’s goods, software, and technology that are subject to the EAR and exported to Russia

• Implementing or updating compliance software to track transactions and assess licensing requirements (i.e., restricted party screening, destination controls, EAR license requirements)

• Recognizing the broad and extraterritorial reach of the US export control and sanctions regime including its application to certain activities occurring wholly outside of the US

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), Global Trade

• Michael Leightman, Houston
• Lynlee Brown, San Diego
• Michael Heldebrand, San Jose
• Nathan Gollaher, Chicago
• Justin Shafer, Cincinnati
• Sergio Fontenelle, New York
• Bill Methenitis, Dallas
• Doug Bell, Washington DC
• Armando Beteta, Dallas
• Bryan Schillinger, Houston
• Prentice Wells, San Jose
• Anand Raghavendran, Irvine
• Nesia Warner, Austin
• Jay Bezek, Charlotte
• Helen Xiao, Chicago
• Sharon Martin, Chicago
• Oleksii Manuilov, New York
• Parag Agarwal, New York
• James Lessard-Templin, Portland
• Sundar Markandan, Irvine
• Rodney Appling, Austin
• Cameron Gauntner, Atlanta
• Jack Harvey, Cincinnati
• Justin Shields, San Diego
• Alexa Reed, Cleveland

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.