Introduction

International energy transactions have traditionally been associated with complex issues of pricing, transportation, financing, political risk and long-term supply security. Today, however, another legal consideration has become equally important: international sanctions and export controls.

A transaction involving crude oil, natural gas, LNG, drilling equipment, turbines, compressors or energy-sector software may appear commercially straightforward while simultaneously creating exposure under the sanctions laws of several jurisdictions.

The legal risks are no longer limited to whether the buyer or seller itself appears on a sanctions list. Modern sanctions regimes can affect:

• banks processing the payment;
• shareholders and beneficial owners of contractual counterparties;
• vessels transporting the cargo;
• insurers and reinsurers;
• brokers and commodity traders;
• ports and terminal operators;
• the origin of energy equipment;
• software and technology incorporated into machinery;
• financing institutions;
• currencies used for settlement; and
• ultimately the destination and end-use of exported goods.

As a result, sanctions compliance has become an integral part of international energy transaction due diligence and contract drafting.

The risk is particularly significant in transactions connected with Russia and Iran, but sanctions and export-control issues may arise in many other jurisdictions and may apply even where neither contractual party is established in the United States, European Union or United Kingdom.

1. Sanctions and Export Controls Are Different Legal Regimes

Although sanctions and export controls frequently overlap, they address different legal questions.

Economic and financial sanctions generally focus on the persons, entities, governments, sectors, vessels, financial services or transactions with which dealings are prohibited or restricted.

Export controls, on the other hand, focus primarily on the movement or transfer of particular goods, software and technology.

Accordingly, before completing an energy transaction, at least two separate questions should be asked:

First: Are the parties, banks, vessels or economic activities involved subject to sanctions?

Second: Is the equipment, technology or software being exported, re-exported or transferred subject to an export licence requirement or prohibition?

A transaction may pass the first test but fail the second.

For example, an oilfield operator may not itself be a sanctioned entity, yet the export of sophisticated drilling, subsea or seismic equipment to the relevant project may still require a licence.

Conversely, an ordinary commercial product may not be export-controlled, but supplying it to an entity owned by a blocked person may nevertheless constitute a prohibited transaction.

2. Why Energy Transactions Are Particularly Exposed to Sanctions Risk

The energy sector is unusually sensitive to sanctions because of its strategic importance to national economies and government revenues.

Oil and gas transactions also involve exceptionally long commercial chains.

A single shipment may involve:

the producer, commodity trader, vessel owner, charterer, ship manager, broker, insurer, reinsurer, terminal operator, inspection company, financing bank, correspondent bank and ultimate purchaser.

If even one participant is subject to relevant sanctions, the entire transaction may be affected.

The European Union’s measures against Russia provide a strong contemporary example. On 23 July 2026, the EU adopted its 21st sanctions package, introducing further measures targeting energy revenues, financial institutions, oil-sector entities and vessels associated with Russia’s so-called shadow fleet. The measures included additional vessel restrictions, further financial-sector transaction bans, measures concerning refineries and new obligations relating to LNG tanker sales.

Accordingly, sanctions analysis in energy transactions cannot be reduced to checking the name of the seller against a sanctions list.

3. The United States Sanctions Framework

The United States operates one of the world’s most influential sanctions systems through the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury.

U.S. sanctions are particularly significant because international energy transactions frequently involve:

• U.S. dollar payments;
• U.S. financial institutions;
• U.S. persons;
• U.S.-incorporated companies;
• U.S.-origin equipment or software; or
• foreign subsidiaries and counterparties with substantial U.S. exposure.

The involvement of the U.S. financial system may therefore create sanctions risk even where the underlying commodity transaction takes place entirely outside the United States.

Moreover, certain U.S. sanctions regimes may create secondary sanctions risk for non-U.S. persons engaging in specified transactions with targeted countries, sectors or designated parties.

International companies should therefore avoid assuming that U.S. sanctions can be disregarded merely because neither the buyer nor the seller is American.

4. The OFAC 50 Percent Rule and Beneficial Ownership

One of the most important sanctions concepts is that checking the official sanctions list is not always sufficient.

Under OFAC’s 50 Percent Rule, an entity is generally treated as blocked where blocked persons directly or indirectly own 50 percent or more in the aggregate, even if the entity itself is not separately named on the SDN List. OFAC specifically recommends appropriate due diligence concerning ownership structures when dealing with counterparties.

Consider the following example.

An energy trading company does not appear on the SDN List.

However:

• Sanctioned Shareholder A owns 30%; and
• Sanctioned Shareholder B owns 20%.

The entity may nevertheless be regarded as blocked under OFAC’s aggregation principles.

Sanctions due diligence must therefore examine not merely the contractual counterparty’s name but also its ownership chain and beneficial owners.

The position differs somewhat under UK rules, where the ownership-and-control analysis can also extend beyond shareholding to circumstances in which a designated person has the ability to ensure that an entity’s affairs are conducted in accordance with that person’s wishes.

5. U.S. Export Controls and Energy Equipment

Sanctions analysis must also be coordinated with the U.S. Export Administration Regulations (“EAR”), administered by the Bureau of Industry and Security (“BIS”).

The EAR govern exports, re-exports and certain transfers of items subject to U.S. jurisdiction and contain controls based on:

product classification,

destination,

end-user,

end-use,

and special country restrictions.

The Commerce Control List classifies controlled products and technologies under Export Control Classification Numbers (“ECCNs”).

Energy-sector equipment can be particularly sensitive.

Current BIS rules relating to Russia and Belarus include licence requirements concerning certain items connected with oil and gas exploration or production, including specified drilling, completion, subsea, seismic, compressor, valve and related technologies.

This creates an important practical issue.

A Turkish, European, Middle Eastern or Asian company may purchase U.S.-origin equipment and subsequently seek to re-export it to another jurisdiction. The company should not assume that U.S. export-control obligations disappeared after the original export from the United States.

Depending on the product and transaction structure, U.S. re-export rules, foreign-direct-product rules and end-user or end-use controls may remain relevant.

6. Dual-Use Equipment in the Energy Sector

Many energy-industry products are not inherently military.

Nevertheless, sophisticated industrial goods may be considered dual-use items because they can serve both civilian and strategic purposes.

Examples potentially requiring particular attention include:

• high-performance pumps;
• compressors;
• valves;
• sensors;
• navigation systems;
• advanced electronics;
• industrial control systems;
• encryption technology;
• certain software;
• seismic equipment;
• subsea systems;
• specialised drilling technologies;
• high-strength materials; and
• sophisticated manufacturing equipment.

The legal analysis should therefore be based on the technical characteristics of the product rather than its commercial description alone.

Calling equipment an “oil pump”, “pipeline component” or “industrial software package” does not determine its export-control classification.

Technical classification is therefore an essential element of legal due diligence.

7. European Union Sanctions and the Energy Sector

EU sanctions may apply to EU nationals, companies incorporated under the law of an EU Member State and transactions falling within EU jurisdiction.

The EU’s Russia sanctions framework includes extensive restrictions concerning financial transactions, trade, technology, energy, shipping and designated persons.

Among the areas addressed by EU measures are:

• restrictions relating to Russian oil;
• oil price-cap requirements;
• restrictions involving certain petroleum products;
• controls on energy-sector equipment and technology;
• restrictions relating to certain vessels;
• financial-sector transaction prohibitions;
• asset freezes;
• anti-circumvention provisions; and
• restrictions concerning certain services.

The European Commission maintains detailed and regularly updated sanctions guidance covering finance, banking, trade, customs, energy and individual financial measures. The consolidated Russia sanctions FAQs were updated again in July 2026.

This illustrates one of the defining characteristics of sanctions law:

a transaction that was legally permissible when negotiations began may face a different legal environment by the time payment, shipment or delivery occurs.

Long-term energy contracts must therefore address changes in sanctions law expressly.

8. Russian Oil and the Price Cap Mechanism

The Russian oil price-cap regime demonstrates how sanctions can affect commercial actors far beyond producers and purchasers.

The G7 Price Cap Coalition created a system under which specified maritime and related services concerning Russian-origin crude oil and petroleum products may be provided only where applicable price-cap conditions are satisfied.

The European Commission confirms that EU operators may provide maritime transport and related services for Russian-origin crude oil and petroleum products only within the relevant price-cap framework.

Compliance can therefore become relevant to:

shipowners,

charterers,

commodity traders,

insurers,

reinsurers,

financial institutions,

brokers,

and other service providers.

As of July 2026, the EU had again expanded its energy-related sanctions, including measures directed against shadow-fleet vessels and oil-sector actors.

The United States likewise maintains specific rules concerning petroleum services and Russian-origin oil transactions. OFAC guidance updated in June 2026 confirms that the price-cap framework does not override other blocking sanctions and that transactions involving blocked persons remain prohibited unless separately authorised.

Accordingly, satisfying the price cap is not a universal sanctions exemption.

The parties and transaction must still be independently screened.

9. Iran-Related Energy Transactions

Iran remains another major area of sanctions risk for international energy companies.

U.S. measures affecting Iran’s petroleum and petrochemical sectors can have significant consequences for companies, banks, shipowners and traders involved in transactions connected with Iranian-origin crude oil or petroleum products.

The regulatory position can also change quickly. For example, OFAC issued an amended Iran-related general licence on 7 July 2026 concerning the revocation and wind-down of a prior authorisation relating to Iranian crude oil, petrochemical and petroleum products.

This demonstrates why companies should not rely on historic legal advice or an old sanctions memorandum when conducting energy transactions.

A licence, waiver or general authorisation may be amended, narrowed, replaced or terminated while a transaction remains outstanding.

10. United Kingdom Sanctions

The United Kingdom operates an autonomous sanctions regime following Brexit.

Russia-related measures are principally implemented through the Russia (Sanctions) (EU Exit) Regulations 2019, as repeatedly amended.

UK rules cover financial sanctions, trade restrictions, transport measures and licensing requirements. Official UK guidance was materially updated again in May 2026.

The UK regime also contains specific rules concerning Russian oil and maritime services.

As of 2026, UK guidance reflected changes to the applicable crude-oil price cap, demonstrating once more that commercial contracts should not hard-code assumptions concerning sanctions thresholds without providing a mechanism for regulatory changes.

UK financial sanctions are administered principally by OFSI, while trade restrictions may involve the Office of Trade Sanctions Implementation and export-control authorities. The UK government has also emphasised increasingly coordinated sanctions enforcement across different government agencies.

11. Payment Restrictions and Banking Compliance

One of the most common practical problems in an international energy transaction is that the underlying contract may be legal while the payment cannot be processed.

Banks generally conduct their own sanctions and compliance analysis.

A payment may be delayed, rejected or frozen because of concerns involving:

• the payer;
• beneficiary;
• intermediary bank;
• correspondent bank;
• beneficial ownership;
• vessel;
• cargo origin;
• sanctioned jurisdiction;
• transaction description;
• currency;
• invoice;
• supporting documentation; or
• potential sanctions circumvention.

A Turkish company may therefore conclude a transaction that is lawful under Turkish law but subsequently discover that its bank will not process the payment because of U.S., EU or UK sanctions exposure.

This is especially relevant to U.S. dollar transactions, which commonly involve correspondent banking relationships within the U.S. financial system.

The payment clause of an energy contract should consequently address not merely the amount and due date but also the possibility that the agreed payment route becomes unavailable.

12. Bank Compliance Is Not Identical to Legal Prohibition

Companies should distinguish between two situations.

The first is where the transaction is legally prohibited.

The second is where a bank refuses the transaction because its own internal compliance policy is more restrictive than the applicable law.

International banks frequently adopt sanctions-risk policies extending beyond the minimum legal requirements.

A seller may therefore argue:

“There is no legal prohibition against receiving this payment.”

Yet the bank may still refuse to process it.

This creates significant contractual questions.

Who bears the risk of bank rejection?

Must the buyer nominate another bank?

Can another currency be used?

Can payment be delayed?

Does the bank’s refusal constitute force majeure?

Can the seller terminate?

These issues should be expressly regulated rather than left for litigation or arbitration after a payment failure occurs.

13. Sanctions Clauses in Energy Contracts

A well-drafted international energy agreement should contain a comprehensive sanctions clause.

The wording should be tailored to the transaction rather than copied from a standard template.

Depending on the circumstances, a sanctions clause may include representations that:

1. neither party is a designated person;
2. neither party is owned or controlled by a designated person;
3. contractual performance will not violate applicable sanctions;
4. the cargo, vessel, bank and payment route will comply with applicable sanctions requirements;
5. the goods will not be diverted to prohibited destinations or end-users;
6. required export licences will be obtained;
7. the parties will promptly disclose relevant sanctions developments; and
8. records required for sanctions and export-control compliance will be maintained.

The contract should additionally provide consequences where a representation ceases to be correct.

14. What Happens if Sanctions Change After Signing?

Energy contracts are frequently long-term agreements.

LNG sale agreements, pipeline arrangements, EPC contracts, equipment-supply contracts and upstream investment agreements may remain in force for many years.

A counterparty that was lawful when the contract was signed may later become sanctioned.

A bank may be added to a transaction-ban list.

A vessel may be designated.

An export licence may become necessary.

A country may become subject to new sectoral restrictions.

The contract should therefore regulate what happens when sanctions arise after execution.

Possible mechanisms include:

• suspension of performance;
• alternative payment arrangements;
• substitution of banks;
• substitution of vessels;
• use of alternative lawful currencies;
• licensing applications;
• extended payment periods;
• termination rights; and
• allocation of additional compliance costs.

The precise drafting is crucial because the parties may otherwise disagree over whether performance has become impossible, merely more expensive or simply inconvenient.

15. Sanctions and Force Majeure

Parties frequently assume that sanctions automatically constitute force majeure.

That assumption is unsafe.

Whether sanctions amount to force majeure depends on:

the governing law,

contract wording,

nature of the restriction,

date on which the sanction was introduced,

foreseeability,

available licences,

alternative methods of performance,

and whether the affected party contributed to the problem.

For example, if payment through Bank A becomes prohibited but payment could legally be made through Bank B, complete contractual impossibility may be difficult to establish.

Similarly, if the transaction can proceed after obtaining a licence, the affected party may first be expected to pursue that authorisation.

Contracts should therefore address sanctions separately rather than relying entirely on a generic force majeure provision.

16. Sanctions as a Separate Termination Event

For high-risk energy transactions, parties commonly negotiate a specific sanctions termination event.

Such a clause may allow termination if:

the counterparty becomes a sanctioned person;

the counterparty becomes owned or controlled by a sanctioned person;

performance becomes unlawful;

a required licence is denied;

continued performance would expose the party or its financing bank to sanctions risk;

or essential banking, shipping or insurance services become unavailable.

However, extremely broad clauses may allow one party to terminate merely because it considers the transaction commercially undesirable.

The wording should therefore distinguish objective legal sanctions risk from subjective reputational concerns.

17. Export-Control Clauses and End-Use Restrictions

Equipment-supply agreements should contain separate export-control provisions.

Particularly where sophisticated energy equipment, technology or software is involved, the buyer may be required to provide:

an end-user certificate,

end-use information,

destination assurances,

undertakings against re-export,

undertakings against diversion,

and cooperation regarding export licences.

Where U.S.-origin or EU-controlled equipment is incorporated into a larger project, the contract should allocate responsibility for determining the relevant product classification and obtaining necessary licences.

The seller should also consider contractual rights to suspend delivery where required end-use information is incomplete or unreliable.

18. Circumvention and the Risks of Indirect Transactions

Modern sanctions regimes increasingly target circumvention.

A prohibited transaction does not necessarily become lawful simply because an intermediary company is introduced.

Potential warning signs may include:

• newly incorporated intermediary companies;
• unexpected changes of consignee;
• unusual transit countries;
• counterparties with no apparent connection to the energy industry;
• complex ownership structures;
• sudden changes in payment instructions;
• payment by unrelated third parties;
• unusual routing of vessels;
• manipulation or gaps in vessel tracking information;
• inconsistent bills of lading;
• unexplained changes in cargo origin; and
• refusal to disclose the ultimate end-user.

Due diligence should therefore examine the economic reality of the transaction, not merely its contractual form.

19. Shipping, Insurance and Vessel Risk

Oil and LNG transactions carry an additional sanctions layer because the vessel itself may create legal exposure.

Before loading cargo, parties may need to examine:

the vessel owner,

beneficial owner,

operator,

technical manager,

charterer,

flag,

classification society,

P&I insurer,

previous voyages,

ports of call,

cargo history,

and sanctions status.

The EU has progressively listed vessels connected with Russia’s shadow fleet and added another 41 vessels under its July 2026 sanctions package.

A sanctions-compliant seller may therefore still face serious problems if the nominated vessel is restricted.

Shipping provisions should allow for vessel rejection or substitution where sanctions concerns arise.

20. The Position of Turkish Energy Companies

Turkish companies participating in international energy trade require a particularly careful multi-jurisdictional analysis.

As a general proposition, an EU, UK or U.S. autonomous sanctions regime does not automatically become Turkish domestic law merely because a Turkish company participates in an international transaction.

However, this does not mean that Turkish businesses can disregard foreign sanctions.

Exposure may arise because:

• payment is made in U.S. dollars;
• a U.S. bank processes the transaction;
• an EU or UK financing institution is involved;
• the cargo is carried by an EU or UK service provider;
• the insurer is subject to foreign sanctions legislation;
• equipment is U.S.-origin;
• European technology is involved;
• a foreign subsidiary participates;
• contractual sanctions provisions incorporate foreign sanctions rules; or
• U.S. secondary sanctions may apply to particular activities.

Türkiye also maintains its own strategic trade-control system.

The Turkish Ministry of Trade’s current export legislation includes controls relating to dual-use and sensitive goods, and Turkish authorities recognise international non-proliferation and multilateral export-control frameworks.

The Ministry’s strategic trade-control guidance also notes Türkiye’s obligations arising from binding UN Security Council resolutions and its participation in multilateral export-control regimes.

Accordingly, a Turkish exporter of sophisticated energy equipment should perform both Turkish export-control analysis and foreign sanctions/export-control analysis where a foreign nexus exists.

21. Sanctions Due Diligence Before an Energy Transaction

A proper due-diligence process should generally cover several layers.

Counterparty Screening

Identify and screen:

• buyer;
• seller;
• parent companies;
• beneficial owners;
• directors where relevant;
• agents;
• brokers; and
• guarantors.

Financial Screening

Examine:

• financing bank;
• issuing bank;
• confirming bank;
• correspondent banks where identifiable;
• payment currency; and
• source of funds.

Trade and Logistics Screening

Review:

• country of origin;
• destination;
• transit countries;
• ports;
• vessels;
• operators;
• insurers; and
• freight providers.

Export-Control Review

Determine:

• technical classification;
• controlled status;
• origin of equipment;
• end-user;
• end-use;
• destination;
• re-export restrictions; and
• licensing requirements.

Contractual Review

Assess:

• sanctions representations;
• compliance warranties;
• payment alternatives;
• suspension rights;
• force majeure;
• termination;
• indemnities;
• licence cooperation; and
• dispute-resolution provisions.

This review should not be treated as a one-time exercise.

For long-term energy transactions, sanctions screening should continue throughout the contractual relationship.

22. Representations, Warranties and Indemnities

Sanctions representations can significantly affect contractual liability.

A seller may represent that neither it nor its relevant owners are sanctioned.

A buyer may represent that the commodity or equipment will not be transferred to prohibited end-users.

A charterer may undertake that the nominated vessel is not sanctioned.

If those statements prove incorrect, the innocent party may seek:

termination,

damages,

indemnification,

suspension,

or other contractual remedies.

However, indemnity provisions cannot make an illegal transaction lawful.

If payment itself is prohibited, a contractual indemnity does not override sanctions legislation.

23. Governing Law and International Arbitration

Sanctions disputes frequently become international arbitration disputes.

Typical questions include:

whether sanctions made contractual performance illegal;

whether a party validly suspended performance;

whether sanctions constituted force majeure;

whether alternative payment was possible;

whether a licence should have been sought;

whether a bank’s refusal justified non-payment;

whether a sanctions clause was triggered;

and whether termination was lawful.

These disputes commonly arise under:

oil and gas sale contracts,

LNG agreements,

joint ventures,

EPC contracts,

drilling contracts,

shipping contracts,

commodity trading agreements,

and energy-equipment supply agreements.

The governing-law clause becomes extremely important because courts and arbitral tribunals may distinguish between:

mandatory sanctions directly applicable to the transaction, and

foreign sanctions that do not directly govern the contract but nevertheless prevent practical performance through banks, insurers or logistics providers.

The distinction may ultimately determine liability for millions of dollars in unpaid invoices, demurrage, termination damages or lost profits.

24. Can a Party Refuse Payment Because Its Bank Cites Sanctions?

Not automatically.

The legal analysis requires asking:

Was the payment legally prohibited?

Was the bank merely applying its internal policy?

Could another lawful bank have processed the transaction?

Could another currency have been used?

Did the contract require the buyer to arrange an alternative?

Was regulatory authorisation available?

Did the affected party make reasonable efforts to obtain a licence?

A contractual party generally cannot assume that the words “our bank refused the payment due to sanctions” conclusively discharge its payment obligation.

The answer depends on the contract, governing law and applicable mandatory rules.

25. The Importance of Sanctions Licensing

Not every sanctions restriction results in a permanent prohibition.

Sanctions regimes frequently contain:

exceptions,

general licences,

specific licences,

wind-down authorisations,

and humanitarian or project-specific exemptions.

A company should therefore determine not only whether an activity is restricted but also whether it may lawfully proceed under an available authorisation.

The current U.S. Russia sanctions framework illustrates the importance of project-specific and time-limited authorisations. OFAC guidance updated in June 2026 refers, for example, to specific authorisations concerning certain petroleum-related activities and projects.

The existence of a licensing mechanism may also affect contractual disputes concerning impossibility and mitigation.

26. Sanctions Compliance as a Transaction-Design Issue

Sanctions compliance should begin before the contract is signed.

A sophisticated international energy transaction should ideally be structured only after examining:

Who are the parties?

Who owns them?

Which banks will process payment?

In what currency?

Where does the commodity originate?

Where will it be delivered?

Which vessel will carry it?

Who provides insurance?

Does the transaction involve U.S.-origin equipment or technology?

What is the ultimate end-use?

Which sanctions regimes have jurisdiction?

Could secondary sanctions apply?

What happens if the rules change during performance?

Addressing these questions before execution is generally far less expensive than attempting to restructure a transaction after cargo has been loaded or payment has been blocked.

27. Practical Contractual Risk Allocation

An international energy contract affected by potential sanctions should generally address at least the following subjects expressly:

1. definition of applicable sanctions laws;
2. sanctions representations and warranties;
3. beneficial ownership obligations;
4. continuing sanctions-screening obligations;
5. notification of designation or ownership changes;
6. export-control classification;
7. responsibility for licences;
8. end-use and end-user undertakings;
9. vessel and shipping compliance;
10. alternative banking arrangements;
11. alternative payment currencies;
12. consequences of frozen or rejected payments;
13. sanctions-related suspension;
14. licence-application obligations;
15. force majeure;
16. termination rights;
17. indemnification;
18. document-retention obligations;
19. anti-circumvention undertakings; and
20. international arbitration or other dispute-resolution mechanisms.

The wording should reflect the actual commercial chain.

A generic sanctions clause drafted for an ordinary sale of goods may be insufficient for a USD 200 million LNG supply agreement or a long-term oilfield services contract.

Conclusion: Sanctions Compliance Has Become a Core Element of Energy Law

Sanctions and export controls are no longer peripheral compliance issues in international energy transactions.

They can determine whether:

a cargo may be transported,

a bank may process payment,

a vessel may enter port,

an insurer may provide cover,

equipment may be exported,

technology may be transferred,

a contract may continue,

or a party must suspend or terminate performance.

The regulatory environment is also exceptionally dynamic. The EU’s adoption of its 21st Russia sanctions package on 23 July 2026, continued U.S. adjustments concerning petroleum-related activities and changing UK measures demonstrate that sanctions analysis must be conducted on a continuing basis rather than solely at contract signing.

For Turkish and international companies operating in the petroleum, natural gas, LNG and energy-equipment sectors, the appropriate approach is therefore a multi-jurisdictional compliance strategy combining sanctions screening, beneficial-ownership analysis, export-control classification, banking due diligence and carefully drafted contractual protections.

In modern international energy trade, the commercial question is no longer simply whether the parties can agree on price and delivery.

The equally important legal question is:

Can the commodity, payment, technology and services legally move through the international financial and trading system from beginning to end?

The answer should be established before the transaction is executed—not after the bank freezes the payment, the vessel is denied services or the equipment is stopped at the border.