The following article explaining what recent sanctions on Russia mean for the shipping and commodities sectors has been written by Maureen Poh, FCIArb, a Director at Helmsman LLC. Poh has significant experience with energy-related shipping and commodity-related matters, as a Singapore and English qualified lawyer.  She is hailed in Chambers 2022 as a well-regarded lawyer in the market; Legal 500 lauds her commodities trading work in both contentious and advisory aspects and describes her as “a key name for charterparty disputes, carriage of goods by sea and cargo claims”:

The US, EU and their allies have imposed sanctions against Russia in the current Ukraine crisis.  The list of sanctions grows longer by the day.  What does this mean for shipping, in particular the bunkering and commodities sectors? The Russia sanctions landscape is changing rapidly.  You need to keep a close eye on it.

Sanctions snapshot

So far there appears to be no blanket prohibition on trading oil or commodities with Russian entities.  What is in place are restrictions relating to foreign financing and new equity issued by thirteen Russian state-owned enterprises and entities including Sovcomflot, oil producer and refiner Gazprom Neft and natural gas company Gazprom, amongst others.  Rosneft has been on the US Sectoral Sanctions Identifications List (SSI List) for some time now.

Of particular significance are sanctions relating to the financial sector.  The US, and to a lesser extent the EU and UK, have imposed a variety of sanctions against identified banks, such as blocking their ability to do business and freezing their assets blocking sanctions.  Interestingly, the US has in place a waiver for “energy-related” transactions with some of the sanctioned Russian banks until June 2022.  “Energy related” is defined broadly: included are extraction, production and refining of any petroleum products as well as other commodities capable of producing energy, such as coal, wood, agricultural products for biofuels, uranium, and electricity.  This is perhaps an acknowledgement of Russia’s importance to the global supply of energy commodities.

Separately, and more importantly to foreign parties dealing with Russian counterparts, is the cutting off of a number of Russian banks from the main international payment system, SWIFT.  The banks are yet to be identified.  SWIFT does not actually move money – it is a secure platform for banks, acting as a middleman to verify information on transactions by providing secure financial messages services between banks.  It is very extensively used as a way to facilitate payment, particularly by way of telegraphic transfer or letter of credit.

An increasing number of Russian individuals have also been placed on the US Specially Designated Nationals and Blocked Persons List (SDN List) or under EU sanctions regulations.

What does this mean for you? 

While there are currently no sanctions by governments or international organisations over Russian energy commodities, it is likely that the private sector will be very cautious in dealing with cargoes linked to Russia or engaging with Russian entities, as there is always the risk of further sanctions being imposed.  The risks of doing business with Russia may become too much for many companies to take on, even without sanctions.

For instance, bunker purchasers might want suppliers to warrant that bunkers supplied contain no Russian-origin material.

Payment might be a big issue.  Companies will have to find alternative ways for payment, for instance over the telephone or fax.  This will obviously have to be coordinated with the banks.

Business dealings with Russian entities will also be scrutinised.  Recently, France seized a ship that is allegedly linked to an individual on the SDN List.

What should you do? Practical tips

• Check your contracts: Is there a Russian element in the performance of the contract? Are there any clauses which you or your counterparty can rely on? This might help you reduce your exposure to sanctions and to get out of the contract.  Conversely, it might enable the counterparty to not perform their obligations under the contract. This may have a knock-on effect on your obligations to third parties, so take note.
• Check your counterparts: It is not sufficient to check that your counterparty is on the SDN List or subject to EU sanctions.  Majority interests in the company, holding company, indirect ownership and control, are also relevant.  I wrote about this in more detail in an earlier article.
• Your financiers might be particularly sensitive to any dealings with Russia, even uncertain and tenuous ones. If in doubt, check with your banks as soon as possible.
• Continue to closely monitor the sanctions situation. What works today might not work tomorrow.

Maureen Poh can be contacted at:

Phone: +65 6950 8667
E-mail: [email protected]

Photo credit: Helmsman LLC
Published: 1 March, 2022