Price Cap Coalition Guidance for Maritime Oil Trade

The document, titled “Price Cap Coalition Updated Advisory for the Maritime Oil Industry and Related Sectors: Best Practices for Addressing Recent Developments in Maritime Oil Trade,” is intended for private-sector businesses and government officials involved in maritime trade in crude oil and petroleum products. The Coalition is working to strengthen compliance with the price caps on crude oil and petroleum products originating in the Russian Federation, maintained by the G7, European Union, Australia, and New Zealand. A footnote explains that the policy is designed to limit revenues used by the Russian Federation in its war against Ukraine while maintaining a stable supply to global markets.

The entire document was revised, and Recommendations 8 through 11 were added. Geopolitical changes have altered shipping routes, broadened the range of maritime service providers, and sometimes reduced transparency in trade. The source says that “shadow” trade has become more visible and often involves entities or cargoes linked to sanctioned countries or individuals, or to other illicit activity. The recommendations are practical guidance to be applied subject to applicable laws and regulations, according to stakeholders’ roles, available information, and the type and risk of the transaction.

According to the source, more than 30 countries have adopted economic measures in response to Russia’s war against Ukraine, including the price cap policy. It warns that some entities may use deceptive practices to access Coalition services, transport Russian-origin crude oil or petroleum products above the price cap, or engage in activities that violate Coalition sanctions or laws. Sanctions imposed by Coalition members on certain vessels and counterparties involved in Russian oil trade are also cited as examples illustrating the risks of such deceptive conduct.

The source says vessels involved in “shadow” trade may include aging ships that have exceeded their conventional operating life, ships registered under flag states that do not fulfill international obligations, ships with falsified registration, and ships lacking required inspections or certificates. Crew members may be inexperienced or placed in circumstances that make it difficult to follow prudent onboard practices set out in STCW. Factors such as vessel age, substandard certification, safety or maintenance, and lack of experience can increase the likelihood of maritime accidents. Oil spills can cause severe damage to the marine environment and impose substantial economic burdens on coastal states.

Unproven P&I insurers used by vessels involved in “shadow” trade may operate in opaque or lightly regulated jurisdictions and may lack the capital, reinsurance, or technical capacity to handle major-incident claims. The source says this can make it difficult to hold vessels accountable for the substantial economic costs of environmental damage. Concealment of ownership structures or cargo origins, and AIS disabling or manipulation, can lead stakeholders to engage unknowingly in transactions that breach their compliance policies, cause reputational harm, and prompt counterparties to avoid the associated risks.

Counterparties’ avoidance of risk can lead to loss of access to reputable service providers, financing, customers, and ports. The source says recent developments expose stakeholders to heightened safety, environmental, economic, reputational, financial, logistical, and legal risks, and that adopting these recommendations and previous guidance can reduce exposure to those risks and promote the safe flow of oil to markets.

Recommendation 1 urges parties to obtain appropriate maritime insurance throughout the voyage from a legitimate insurer covering “Civil Liability Convention and Oil Pollution Act (CLC) liabilities,” as stated in the source. If an insurer is not an eligible provider, parties should, where possible, investigate its financial soundness, track record, regulatory history, and ownership structure. Recommendation 2 calls for classification by an IACS member classification society. Information from classification societies helps assess a vessel’s seaworthiness and determine whether it is suitable for its intended use. According to a footnote, IACS classifies more than 90% of the world’s ocean-going tonnage.

Recommendation 3 urges continuous AIS transmission during a voyage in accordance with SOLAS, and documentation of the circumstances when AIS is switched off for legitimate safety reasons. Irregular AIS information should be checked against the vessel’s actual position, with LRIT used as a supplementary source where accessible. Recommendation 4 calls for ship-to-ship transfers to comply with MARPOL and domestic regulations. Such transfers can serve legitimate purposes, but may also pose sanctions-evasion, regulatory, safety, or environmental risks when used to conceal cargo origins or destinations or conducted outside safe and sheltered waters. The recommendations urge enhanced checks appropriate to each party’s role, required notifications, and verification of cargo movements through oil record books.

Recommendation 5 notes that inflated or bundled charges for freight, customs duties, insurance, and other transport or ancillary costs can be used to conceal evasion of the price cap on Russian-origin crude oil. Unreasonable or opaque charges should be treated as signs of possible violations. These costs are excluded from the price cap and should be charged at commercially reasonable rates, separately from the oil price. Industry participants involved in Russian oil transactions should request, at the outset of a transaction, itemized details of known charges such as port fees, freight, and insurance premiums. As of early 2024, Coalition service providers were required in certain circumstances to request information, and may need to update contract terms or invoicing methods to show separately the price of the oil up to the loading port and the prices of transport and other services.

Recommendations 6 and 7 urge enhanced due diligence based on factors such as reflagging, changes of vessel name or ownership, vessel age, and incident, deficiency, or inspection history, as well as checks on intermediaries that conceal beneficial owners and on opaque practices. Verification is especially important when market assessments indicate that the price of Russian-origin crude exceeds the cap and Coalition services are being used or requested. Industry participants who identify suspected illegal or unsafe maritime trade, or suspected price-cap violations, should report them to the relevant authorities.

Recommendation 8 calls on flag states to fulfill their obligations under SOLAS, MARPOL, STCW, and CLC. Port state authorities check foreign-flagged tankers for regulatory compliance and safety and environmental standards, and may consider detention or refusal of entry in response to illegal operations or regulatory evasion. Coastal states monitor ship-to-ship transfers in territorial waters and exclusive economic zones (EEZs), and stakeholders should coordinate with the relevant authorities regarding vessels of concern. Recommendations 9 and 10 urge checks on buyers’ beneficial owners, contact details, sources of funds, identification documents, and past affiliations in tanker sales, especially transactions involving older vessels or ships intended for recycling; parties should verify this information using third-party databases, media reports, and market information, and review it regularly. Avoid contact with sanctioned persons or vessels unless authorized or exempted by the authorities, and check both sanctions lists and counterparties’ recent affiliations. Watch for name changes, reflagging, concealed IMO numbers, and forged documents; where possible, refuse or report attempts to enter port, conduct transfers, or sell tankers. Recommendation 11 urges training on shadow-fleet warning signs, reporting, sanctions risks, and safety, environmental, and economic impacts, as well as dialogue and information sharing within the industry.