The US Department of the Treasury has introduced new sanctions to reduce Russian energy revenues by blocking Gazprom Neft and Surgutneftegas, and imposing new measures to tackle the ‘shadow fleet’ of opaque operations and traders.
The actions, supported by the UK, authorise sanctions under Executive Order (E.O.) 14024 against persons operating or having operated in the energy sector of the Russian Federation economy.
The Department is also taking steps to reduce Russia’s energy revenues by blocking two ‘active’ liquefied natural gas (LNG) projects, and several LNG tankers owned by Sovcomflot.
“The United States is taking sweeping action against Russia’s key source of revenue for funding its brutal and illegal war against Ukraine,” said Secretary of the Treasury Janet L. Yellen.
“This action builds on, and strengthens, our focus since the beginning of the war on disrupting the Kremlin’s energy revenues, including through the G7+ price cap launched in 2022. With today’s actions, we are ratcheting up the sanctions risk associated with Russia’s oil trade, including shipping and financial facilitation in support of Russia’s oil exports.”
The new measures, which also encompass extraction and production of petroleum products from 27th February, also cover third-country entities supporting Russia’s energy exports.
Additionally, the Treasury issued amended General License 8L, which authorises certain wind-down transactions related to energy until 12th March 2025.
The narrowing authorisation for transactions related to Russian energy further reduces Russia’s ability to leverage this sector ‘and fund its war machine’. The Office of Foreign Assets Control (OFAC) also targets more than two dozen Gazprom Neft and Surgutneftegas subsidiaries.
Russia has grown increasingly reliant on vessels that participate in high-risk shipping practices to facilitate illicit or sanctionable activity, often called the ‘shadow fleet’. The new sanctions list 183 vessels, largely oil tankers.
The Treasury also designated joint stock company Sovcomflot, Russia’s state-owned shipping company and fleet operator that specialises in the transportation of hydrocarbons and the servicing and support of offshore oil production.
The Department is also identifying as blocked property 69 vessels, including 54 oil and product tankers and four liquefied natural gas (LNG) tankers, and several owned by Sovcomflot.
Five specific vessels were cited on the extensive list including Panama-flagged LNG carrier Christophe De Margerie (IMO 9737187); Barbados-flagged LNG carrier Pskov (IMO 9630028); Barbados-flagged LNG carrier Velikiy Novgorod (IMO 9630004); Barbados-flagged LNG carrier Velikiy Novgorod (IMO 9630004); and Russia-flagged LNG carrier Vostochny Prospect (IMO 9866392).
OFAC is sanctioning two UAE-based ship managers that support Sovcomflot, Fornax Ship Management FZCO (Fornax) and Stream Ship Management FZCO (Stream), along with two Russia-based maritime insurance providers, Ingosstrakh Insurance Company and Alfastrakhovanie Group, which were previously sanctioned by the UK.
Many more companies made the list, with interests stretching from Hong Kong to the Cook Islands, along with more than a dozen energy industry CEOs and ministers, including Artem Aleksandrovich Verhov, Director of the Gas Industry Development Department at the Ministry of Energy of the Russian Federation. Any entities that are owned, directly or indirectly, 50% or more by one or more blocked persons are also blocked.
Speaking on ‘The forces that are shaping the world energy outlook’, hosted by Atlantic Council TV, Daniel Yergin, Vice-Chairman of S&P Global, said, “The sanctions announced on Friday are the most significant as they going after two major Russian companies, and that changes the calculations for buyers. It’s late in the day but these are impactful, and it’s handed to the next administration to follow up on them. It’s always been the one area where Russia was most vulnerable, but the Russians have had plenty of time to develop their ghost fleet and figure out how to work around them.”
Yet the US remains in a position of energy dominance, not only with oil but also as the world’s largest exporter of LNG. “It’s very Churchillian, they are sources of economic strength and great strategic importance. The value of US LNG exports is half of the total value of semiconductor exports, and more than soya beans – and my favourite comparison, it’s twice the value of all of Hollywood and television exports. In other words, this is a very significant export interest that’s almost come up overnight.”
Clean fuels and IRA credits
Alongside the Russia sanctions, the Treasury released guidance on the Clean Fuels Production Credit (45Z).
Section 45Z provides a tax credit for the production of transportation fuels with lifecycle greenhouse gas (GHG) emissions below certain levels. The credit is in effect in 2025 for sustainable aviation fuel (SAF) and non-SAF transportation fuels.
It provides a per-gallon (or gallon-equivalent) tax credit for producers of clean transportation fuels based on the carbon intensity of production, consolidating and replacing pre-Inflation Reduction Act (IRA) credits for biodiesel, renewable diesel, and alternative fuels, and an IRA credit for sustainable aviation fuel.
Like several other IRA credits, 45Z requires Treasury to establish rules for measuring carbon intensity of production, based on the Clean Air Act’s definition of ‘lifecycle greenhouse gas emissions’.
“This guidance will help put America on the cutting-edge of future innovation in aviation and renewable fuel while also lowering transportation costs for consumers,” said Deputy Secretary of the Treasury Wally Adeyemo.
The announcement also acknowledges the important role ‘climate-smart agriculture’ plays in clean transportation as well as the importance of providing pathways for unbundled accounting of climate smart practices that producers can count on.
“This tax credit is essential to US competitiveness and to reduce emissions in the transportation sector with more affordable, cleaner fuel,” said Deputy Energy Secretary David M. Turk. “The final guidance released today provides clarity and certainty to America’s world-leading biofuel industry, a crucial player in lowering emissions from the aviation and heavy transportation industries.”
The Internal Revenue Service (IRS) also announced $6bn in tax credits for the second round of the Inflation Reduction Act’s (IRA) 48C Qualifying Advanced Energy Project Tax Credit.
The 48C Programme, managed by the IRS with assistance from Department of Energy’s (DOE) Office of Manufacturing & Energy Supply Chains (MESC), was originally established by the American Recovery and Reinvestment Act of 2009, and subsequently expanded with a $10bn investment under the IRA.
Of this $10bn, 40% is reserved for projects in designated 48C energy communities (those with closed coal mines or coal plants).
Projects involved with industrial decarbonisation can claim $700m in tax credits (12% of round 2 tax credits).
The objective of the programme is to fund critical projects that expand US clean energy manufacturing and recycling capacity, grow US critical materials processing and refining capacity, and drive process efficiency and reduce greenhouse gas (GHG) emissions at US industrial facilities.
Round 2 supported a wide scope and scale of projects, with tax credit allocations ranging from under $10m to over $100m.
