Out-Law News 1 min. read

US sanctions reignite secondary sanctions concerns in South Africa


A new wave of sanctions imposed by the US targeting individuals accused of supporting Russia’s war effort in Ukraine will no doubt reignite concerns across South Africa regarding the intended partnership between PetroSA and Gazprombank, an expert has said.

The deal, first announced in late 2023, would see South Africa’s state-owned Petroleum Oil and Gas Corporation (PetroSA) partner with Russia’s Gazprombank – GPB Africa & Middle East (GPB) to restart an oil refinery in the country.

The revitalisation of the refinery is an important project for South Africa’s energy industry and if successful, could prove extremely lucrative for both PetroSA and GPB. The partnership envisages an investment of R3.7 billion (US$200 million) from GPB into the refinery. In addition, GPB will provide gas concentrate, at least until domestic natural gas becomes available. In exchange, GPB will get a share of the profits. Beyond these high-level details, the precise arrangement remains unclear, and officials involved in the deal have been evasive when questioned. 

The previous announcement of the deal raised concerns locally, and the recently announced sanctions from the US Office of Foreign Asset Control (OFAC) “will no doubt reignite local concerns regarding the intended partnership”, said Vishana Mangalparsad, sanctions specialist at Pinsent Masons.

The announcement bans GPB from trading with the US and freezes its US assets. The US treasury also issued a warning that foreign financial institutions that continue to provide services to sanctioned banks face “significant sanctions risk”.

Edward James, sanctions law expert at Pinsent Masons, said: “The announcement means that if PetroSA chooses to proceed with the deal in its current form, it will invite closer scrutiny from OFAC and further erode relations with the US over Russia. In the worst-case scenario, OFAC may make an example of PetroSA. It would obviously not be a good thing if a South African state-owned entity was sanctioned. The timing is also not good as South Africa is currently undergoing an assessment by the OECD as it tries to get removed from the FATF ‘grey list’.”

OFAC has been by far the most proactive global regulator of Russia related sanctions and Gazprombank and many of its subsidiaries have already been subjected to sanctions by the UK and EU following Russia’s 2022 invasion of Ukraine. With OFAC stepping in and sanctioning the bank, the risks have significantly escalated.

“It remains to be seen how PetroSA will react to the new developments, but any step taken will require careful consideration to navigate the challenges posed by the sanctions,” said Mangalparsad.

James added: “If the deal does go ahead, companies looking to do business with the PetroSA and GPB refinery will need to carefully consider the risks and make sure that they don’t expose themselves to unnecessary sanctions risks.”

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