Oil Price Cap Enforcement and G7 Ban on Russian Diamonds

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Treasury’s Office of Foreign Assets Control (OFAC) has taken its second price cap enforcement action of 2024, imposing sanctions on four entities and identifying one vessel as blocked property. The network of these entities and the vessel were involved in a price cap violation scheme in late 2023.

OFAC is also issuing two new determinations that implement G7 commitments to ban the importation of Russian diamonds.

The Oil Price Cap

The Price Cap Coalition, including the G7, the European Union, and Australia, have agreed to prohibit the import of crude oil and petroleum products of Russian Federation origin (“Russian oil”). These countries have also agreed to restrict a broad range of services related to the maritime transport of Russian oil—unless that Russian oil is bought and sold at or below the specific price caps established by the Coalition or is authorized by a license.

On February 1, 2024, the Price Cap Coalition published an Oil Price Cap (OPC) Compliance and Enforcement Alert (the “Alert”). The Alert, which is directed at both government and industry stakeholders, provides examples of specific evasion methods to improve compliance measures, and provides avenues to report suspected oil price cap breaches to members of the Price Cap Coalition.

The release of the alert came after a British Parliamentary committee said there is “growing evidence,” of Russia’s evasion of the price cap.  The lawmakers called for more “decisive action,” by the UK and its allies saying they were “concerned at the growing evidence “of Russia’s evasion tactics. 

The UK report said that Russia was using the shadow fleet and buying old tankers through third parties as it avoided the price cap and reduced the participation of Western tankers in the oil trade. Detailing the findings, the Agence France Presse cited data that for example showed 179 shadow fleet tankers had loaded Russian oil in November 2023.

On December 20, 2023, OFAC, in coordination with the Price Cap Coalition, updated its Guidance on Implementation of the Price Cap Policy for Crude Oil and Petroleum Products of Russian Federation Origin, to strengthen the attestation and recordkeeping processes for certain covered service providers and reduce opportunities for bad actors to disguise Russian oil purchased above the cap. 

On October 12, 2023, the Price Cap Coalition published a Coalition Advisory for the Maritime Oil Industry and Related Sectors (“the Advisory”). The Advisory, which is directed at both government and private sector actors involved in the maritime trade of Russian oil, provides recommendations concerning specific best practices and reflects our commitment to promoting responsible practices in the industry, preventing and disrupting sanctioned trade, and enhancing compliance with the price cap.

OFAC previously published an Alert on Possible Evasion of the Russian Oil Price Cap on April 17, 2023.

Limited Sanctions on Diamond Trade

OFAC has also issued two determinations prohibiting the importation of certain categories of diamonds mined in Russia.

  • First, OFAC issued a determination prohibiting the importation of on non-industrial diamonds mined or extracted in Russia, notwithstanding whether they have been substantially transformed in a third country, effective beginning on March 1, 2024 for certain categories of diamonds, and expanding on September 1, 2024 to include additional categories.
  • Second, OFAC issued a determination prohibiting the importation of diamond jewelry and unsorted diamonds of Russian Federation origin or exported from the Russian Federation, effective March 1, 2024.

These prohibitions are intended to implement the December 2023 G7 commitments to impose phased restrictions on the importation of diamonds mined or extracted in Russia. OFAC intends to issue additional public guidance regarding these determinations.

A G7 statement issued after a virtual summit on December 6 joined by Ukrainian President Volodymyr Zelenskiy said the first set of restrictions on nonindustrial diamonds, mined, processed, or produced in Russia would take effect on January 1.

This will be "followed by further phased restrictions on the import of Russian diamonds processed in third countries targeting March 1, 2024," the leaders of Britain, Canada, France, Germany, Japan, Italy, and the United States said in a statement

The large majority of Russian diamonds are – like over 90% of the global diamond supply – cut and polished in India. Under the curent U.S. sanction regime they are from that moment considered as Indian diamonds and can freely enter their market. 

To further the effectiveness of these measures, those G7 members who are major importers of rough diamonds hope to establish a robust traceability-based verification and certification mechanism for rough diamonds within the G7 by September 1, 2024

The G7 statement concluded “We will continue consultations among G7 members and with other partners including producing countries as well as manufacturing countries for comprehensive controls for diamonds produced and processed in third countries on measures for traceability,” meaning no agreement had been reached on an outright ban.

Russia is the world’s largest diamond producer by volume. A third of the world’s current diamond supply comes from Russia’s Siberian mines. Over 90% of these diamonds are produced by a single company, Alrosa, two-thirds of which is owned by Russian government entities.

Office of Foreign Assets Control (OFAC) is publishing a Determination for