OFAC's Russian diesel licence: what changes for emerging-market traders and banks

The US Treasury's Office of Foreign Assets Control (OFAC) issued two Russia-related general licences on consecutive days this month. General License 135, dated 9 October, authorises transactions related to the sale, delivery, offloading and importation of diesel fuel of Russian origin until 12:01 a.m. US eastern daylight time on 7 April 2027. General License 13S, dated 8 October, extends until 9 January 2027 a narrower authorisation for US-owned businesses to pay Russian taxes, fees and import duties. GL 13S continues a series renewed every three months this year, after GL 13Q in April and GL 13R in July.

What General License 135 covers

The licence authorises all transactions prohibited by the Russian Harmful Foreign Activities Sanctions Regulations or the Ukraine-/Russia-Related Sanctions Regulations that relate to Russian-origin diesel, "including importation into the United States", its text shows. Its only stated exception bars any debit to an account at a US financial institution held by the Central Bank of the Russian Federation, the National Wealth Fund or the Ministry of Finance. Unlike GL 13S, it contains no carve-out for transactions involving persons blocked under the Russia regulations. OFAC's notice of the licence carried no accompanying guidance.

The licence followed an announcement the same day by President Donald Trump, after a call with Vladimir Putin, that Russia would immediately supply more than 300,000 tons of diesel to the US and global market, followed by 500,000 tons in November and larger volumes later, the Associated Press reported. The details of the deal have not been published officially or confirmed by Russia, the law firm Clyde & Co said in a sanctions alert on 13 October.

Why it matters outside the United States

For banks and traders in emerging markets, the main channel is US secondary sanctions. OFAC says foreign financial institutions risk sanctions for any significant transaction involving a person blocked under Executive Order 14024 (FAQ 1181), in any currency (FAQ 1152). Its FAQ 1182, last updated on 11 June, adds: "Foreign persons do not risk the imposition of sanctions for engaging in transactions authorized for U.S. persons under General Licenses issued under the Russian Harmful Foreign Activities Sanctions program." GL 135 is issued under that programme's regulations. On the face of that guidance, diesel deals within the licence's terms carry no US secondary-sanctions exposure while it remains in force.

Beyond the sovereign-account exclusion, two limits remain:

• Other programmes. A general licence covers transactions prohibited under "a particular sanctions program", in the words of OFAC's FAQ 74, so a cargo, vessel or counterparty also designated under another programme is not covered, as HSF Kramer points out. OFAC's Iran-related designations on 8 October, for example, covered individuals and companies in India, Türkiye, the United Arab Emirates and Hong Kong, and 24 vessels.
• Other jurisdictions. GL 135 "does not affect Russia-related sanctions imposed by other members of the Price Cap Coalition, such as the UK and EU", Clyde & Co wrote. UK and EU traders, shipowners, charterers, banks and insurers remain barred from the supply and delivery of Russian diesel into the US unless it is price-cap compliant, and UK and EU designations of Russian producers still apply, the firm said.

A licence under legal and political pressure

The Ending Importation of Russian Oil Act of April 2022 bans US imports of all Russian products classified under chapter 27 of the US tariff schedule, which Clyde & Co says includes diesel. The president may lift the ban only by certifying that Russia has agreed to withdraw its forces and end hostilities on terms accepted by Ukraine's government, poses no immediate military threat to any NATO member and recognises Ukrainians' right to choose their own government. Certification must follow consultation with four congressional committees at least 45 days in advance, and the ban ends 90 days after certification unless a joint resolution of disapproval is enacted. HSF Kramer notes that GL 135 does not expressly address the statute.

Six senators, four Republicans and two Democrats, said on 11 October that the decision "runs directly counter to that law" and that the administration "must immediately reverse course", the AP reported. Clyde & Co said GL 135 "sits in tension with the Russian Oil Act and may therefore be subject to legal challenge", noting that general licences used as negotiating tools in other programmes "were quickly withdrawn when negotiations broke down". It advised companies to evaluate their risk tolerance before acting under the licence.

GL 13S is routine by comparison. It allows US persons, and entities they own or control, to pay taxes, fees and import duties and to obtain permits, licences, registrations, certifications and tax refunds where Directive 4 under Executive Order 14024 would otherwise bar dealings with the Russian central bank, National Wealth Fund or finance ministry, provided the transactions are ordinarily incident and necessary to day-to-day operations in Russia. Apart from its dates, its text is identical to GL 13R, and it excludes transactions with blocked persons. OFAC's FAQ 1118, written for GL 13R, says so-called exit tax payments on divestment from Russia are not covered and require a specific licence. Because the authorisation extends to entities owned or controlled by US persons, it also reaches US-owned subsidiaries outside the United States.