U.S. excludes oil for Japan from Russia’s Sakhalin-2 from price cap

Oil from Russia’s Sakhalin 2 energy project bound for Japan will be excluded from facing a price cap the United States will roll out as part of efforts to squeeze Moscow’s revenues for its war in Ukraine, the Treasury Department said in its guidance released Tuesday.

The price cap, which other members of the Group of Seven and Australia have also agreed to introduce, will take effect Dec. 5 for crude oil. Japanese trading firms maintain stakes in the Sakhalin 2 project, which the government sees as an important energy supply source for the resource-poor country.

As for the price cap level, a senior Treasury official said discussions are taking place among members of the European Union before the entire international “Price Cap Coalition” can announce it.

Under the Treasury’s guidance, U.S. persons will be allowed to provide a range of services, including finance, insurance and shipping, for seaborne transportation of Russian oil only if the oil is purchased at or below the price cap.

The price cap application will start when a Russian entity sells crude oil for maritime transport through its first sale to a buyer on land. This means that once the Russian oil has cleared customs in a jurisdiction other than Russia, the price cap does not apply to any further onshore sale.

But if, after clearing customs, the Russian oil is taken back out on the water without being “substantially transformed,” such as by refining, the price cap still applies, according to the guidance.

Exemptions include the maritime transport of crude oil from Sakhalin-2, provided that the product “is solely for importation into Japan,” it said. The authorization for the Russian project will be effective through Sept. 30.

In August, a new operating company for the Sakhalin 2 oil and liquefied natural gas project was launched and Russia has authorized investments by Japanese trading houses Mitsui & Co. and Mitsubishi Corp.

Russia accounted for around 3.6 percent of total Japanese oil imports last year, according to government data.

The G-7 consists of Britain, Canada, France, Germany, Italy, Japan and the United States plus the European Union.

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