Further UK and US sanctions target Russian oil giants and production

Stacy Keen, sanctions law expert at Pinsent Masons, was commenting following the move which underscores support for Ukraine amid the ongoing troubles.

Keen said: “Alongside Gazprom Neft and Surgutneftegas, the US directly designated more than two dozen subsidiaries of these entities, including subsidiaries in Tajikistan, Luxembourg, Kazakhstan, Serbia and Kyrgyzstan, applying US blocking sanctions to dealings with them. Entities owned 50% or more, directly or indirectly, by Gazprom Neft, Surgutneftegas, or their directly targeted subsidiaries, also fall within the scope of the application of US sanctions restrictions. Although the UK has not directly designated Gazprom Neft or Surgutneftegas subsidiaries, UK financial sanctions restrictions will extend to them if they are owned or controlled by either entity.”

The UK ownership/control test is met if Gazprom Neft or Surgutneftegas holds more than 50% of the shares or voting rights in an entity, can appoint or remove a majority of its board of directors, or can otherwise control its affairs.

The UK and US differ in their application of the ‘attribution test’, being the test for assessing whether financial or blocking sanctions restrictions extend to a non designated entity.

The US threshold is 50% ownership, while the UK's is more than 50%. This distinction means UK restrictions may not apply to entities 50% owned by Gazprom Neft, while US restrictions would. However, the UK considers wider considerations in applying the attribution test, including the degree of control that can exercised over an entity.

The designation of Gazprom Neft aligns the UK and US more closely with the EU, which prohibited all transactions with Gazprom Neft in March 2022. This restriction extends to non-EU entities owned more than 50% by Gazprom Neft or entities acting on its behalf.

Keen said: “Identifying risks related to Gazprom Neft, Surgutneftegas, and other designated entities requires enhanced due diligence and monitoring for red flags, such as divestments of shares or transfers to connected persons.”

Alongside the designations, the UK has issued a licence authorising those bound to comply with UK sanctions to wind down or divest from transactions with Gazprom Neft, Surgutneftegas and the entities that either owns or controls until February 27. UK banks are permitted to process payments related to these transactions until that date. Records of any use of the licence must be maintained for six years.

Additionally, a separate licence allows the continuation of business operations with Gazpromneft-Sakhalin LLC, and entities that it owns or controls, in relation to the Sakhalin-2 project from January 10 to June 28. The Sakhalin-2 project is an oil and gas development in Sakhalin Island, Russia This licence covers both existing and new obligations or contracts.

The US sanctions package extends beyond Gazprom Neft and Surgutneftegas, targeting Russia’s oil production and export infrastructure. This includes oil-carrying vessels, Russia-based oilfield service providers, and Russian energy officials. From 27 February, the provision of US petroleum services to persons in Russia is also prohibited, cutting off Russia’s access to US services related to crude oil and petroleum product extraction and production. Licences are in place to permit certain activities that would otherwise contravene these new prohibitions. The US has also issued a range of – time limited –  licences in response to the recent sanctions imposed.