Recent months have seen a number of significant sanctions developments, giving rise to changes in the international compliance landscape. In this article, we collect the key issues and set out our analysis of what this means for corporates in the energy and infrastructure sectors. These developments include:
- The UK and EU’s price cap reduction (and new mechanism) on Russian crude coming into effect from 3 September 2025.
- The EU’s import ban on refined products produced from Russian crude oil (wherever refined) coming into effect from 21 January 2026.
- The Office of Financial Sanctions Implementation’s (OFSI) proposal to increase statutory limits on civil penalties for sanctions breaches in a recent consultation paper.
- The Supreme Court’s approach to proportionality review under the UK’s Russian sanctions regime as set out in the Schvidler and Dalston appeals.
Price Cap Reduction
The EU and the UK have lowered the price cap on Russian crude to $47.60 down from $60, taking effect 3 September 2025. While trade above this price remains permitted (subject to other restrictions), most maritime services — including broking, insurance and shipping — cannot be provided from the UK or EU.
The EU is also implementing an automatic procedure to modify the price cap on a periodic basis. The automatic procedure works by taking the average price of Russian crude over a 22-week period (beginning 15 July) and adopting a new cap that is 15 percent less than the average price. If the average price at the end of subsequent 22-week periods is within a +/-5 percent margin of the previous average price, then the cap will remain unchanged. If the new cap is different, it will apply from the first day of the next calendar month.
The first calculation date will be 16 December 2025, meaning that a new price cap will come into effect on 1 January 2026 (assuming a sufficient variation in average price).
EU Import Ban
With effect from 21 January 2026, the EU will prohibit imports of refined products made from Russian crude oil. This means that it will be prohibited to import into the EU certain products made from Russian crude, regardless of where those products have been refined (save for products imported from the UK, Canada, Norway, Switzerland and the US referred to as Annex LI countries).
The measure is intended to crack down on the “sanctions loophole” whereby Russian crude is purchased and refined by entities in third countries which then sell the petroleum derivatives into the EU market. The new measure will apply to all refined products in customs code CN2710 which includes jet fuels, lubricants, gas oil, kerosene and hydraulic fluids.
Importers of those refined oil products will need to provide — at the time of import — evidence of the country of origin of the crude oil used to make the product, unless importing from an Annex LI country.
However, if refined product is imported from a country that was a net exporter of crude oil in the past calendar year, it will be assumed to have been made using domestic crude supply. This assumption will apply unless the competent authority of a member state has a reason to believe that this is not the case.
In practice, this assumption is expected to materially reduce the impact of the import ban. While data sources vary, key exporters of refined products such as Saudi Arabia, Iraq, UAE, Kuwait, Kazakhstan, Angola, Azerbaijan and Brazil are all also net exporters of crude. For that reason, refined products imported from those countries into the EU may not have their origins scrutinised, which may enable Russian crude derivatives to be imported into the EU. That being said, key jurisdictions such as India, China and Turkey are net importers of crude and so will be caught by the ban.
OFSI Penalty Limits
In a consultation paper published in July this year, OFSI proposed to increase the maximum monetary penalties applicable to sanctions violations. The maximum penalties have not been revised since the introduction of the Policing and Crime Act 2017 (PACA). OFSI’s stated motivation behind the proposal is to enhance the deterrent effect of civil sanctions enforcement.
Under section 146 of PACA, OFSI may currently impose penalties up to £1 million or 50 percent of the value of the funds involved, whichever is greater. OFSI has proposed to double the statutory limit to the greater of £2 million or 100 percent of the value of the identifiable related funds or resources. The change would give OFSI greater discretion to impose higher penalties in serious cases, particularly those involving large transactions or systemic breaches.
As highlighted by the consultation paper, the proposed changes would not necessarily result in higher average monetary penalties because the changes relate only to increasing the applicable statutory maxima. However, the proposal for greater discretion in setting penalties indicates a move towards a harsher civil penalty regime for sanctions violations.
Schvidler and Dalston
The Schvidler and Dalston [2025] UKSC 30 judgment relates to the proportionality review of decisions made by the Foreign Secretary (Schvidler) and Transport Secretary (Dalston) to respectively designate Mr. Eugene Schvidler and detain a superyacht under the Russia (Sanctions) (EU Exit) Regulations 2019 (the 2019 Regs). In both cases, the Court decided that the sanctions were lawful and proportionate, indicating that the public policy goal of deterring Russian aggression is to be prioritised ahead of protecting individual rights and freedoms (highlighted by Lord Leggatt’s dissent). The judgment confirms that legal challenges to sanctions under the 2019 Regs face a high threshold by virtue of the wide margin of discretion afforded to the executive in sanctions matters.
Key Takeaways
- Periodic changes to the UK/EU price cap will result in additional challenges for traders who will require more complex compliance systems and processes to manage the additional, and now changing, obligations. There may also be impacts on longer term activities, where the maximum price and/or availability of necessary maritime services will now be uncertain.
- Refineries and traders in products will face particular challenges:
- Those relying on trade with entities in EU member states will need to consider in detail where they source their feedstock, and ensure that they can produce appropriate evidence. This will, at least, create additional compliance burdens on refineries (which already operate on tight margins), and may restrict or limit feedstock availability.
- Some refineries, with specific set ups, may need to mitigate these rules by exploring trade with non-EU countries, where Russian crude cannot be entirely phased out.
- Refineries may also need to consider establishing segregated refinement processes and storage for Russian crude as opposed to domestic crude to ensure that refined products originating from Russian crude are not supplied into EU markets.
- Where refineries plan to rely on the net-exporter exemption, export data will need to be obtained promptly in January 2026 so that it may be relied on at the required time.
- Entities at risk of civil sanctions penalties may need to recalibrate their worst-case expectations as OFSI may now issue fines up to £2 million ($2.7 million) or 100 percent of the funds involved in the sanctions breach.
- Schvidler and Dalston confirm a high bar for overturning sanctions designations/detentions under the 2019 Regs which should factor into corporates’ risk assessments when reviewing UK sanctions exposure.
