Kulevi Port is an oil terminal located on the Black Sea coast of Georgia. Operated by the State Oil Company of the Azerbaijan Republic (SOCAR) it serves primarily as a transhipment and storage facility for crude oil and petroleum products. Kulevi Port was first opened in 2008 and currently acts as an important regional oil storage and transhipment terminal.
Discussions regarding the potential inclusion of the Kulevi oil terminal (often referred to as the Kulevi Port in policy documents) in EU sanctions frameworks emerged in February 2026 in the context of the 20th sanctions package. However, by early March 2026, the EU decided not to include the facility in the package. This decision was reportedly influenced by commitments made by the Georgian authorities and the terminal’s operator to prevent access by sanctioned vessels, including those commonly described as part of the “Shadow Fleet”.
The EU decision was communicated in a letter from the European Commission to the Minister of Foreign Affairs of Georgia dated 5 March 2026.[1] The letter indicates that the Commission is content with the commitments the Georgian side has declared. Yet, it also alludes to the point that the EU will continue monitoring the current situation and that the decision may be revisited in light of future developments.
The letter is important, particularly from a legal point of view, as it provides a glance into the expanded approach by the EU when it comes to imposing sanctions. Firstly, it states the EU’s determination to push sanctions beyond vessels to the entire logistics chain, which would in turn include ports such as Kulevi. And secondly, it warns the third country actors and their logistical and financial sectors that activities facilitating the bypass of the EU sanctions will not go unnoticed.
It is against this background that this article attempts to explore the potential impact of sanctions on the Kulevi Port, addressing the legal, commercial, and compliance risks for companies involved in oil trading.
Transaction Bans on Infrastructure
As of today, the EU has listed over 600 vessels identified as engaging in the so-called high-risk and deceptive shipping practices. Vessels are sanctioned per Council Regulation (EU) 833/2014 and are now “banned from accessing ports and receiving maritime services in the EU”.
While the direct designation of port infrastructure is relatively rare, sanctions practice demonstrates that ports may be targeted either directly (as was the case in Iran or Syria) or indirectly through access bans and restrictions on vessels and operators (as in Crimea). In both cases, the practical effect is the same: the port becomes commercially isolated.
When looked at from a legal angle, a “transaction ban” stands out as an important impediment. It is not a traditional asset freezing or listing; instead, it prevents EU individuals and businesses from conducting any kind of business activities, whether commercial, financial, or service-related, with certain entities or infrastructures.
In practice, this could mean no more port services, financing, insurance deals, brokering, or anything that involves EU operators. While these bans do not always need the same formal designation as asset freezes do, their impact is similar. The targeted infrastructure can end up cut off from EU markets and financial systems entirely. For businesses, this can lead to some immediate fallout, such as losing access to EU partners and disruption of existing contracts.
The implications are therefore both prospective and ongoing. Operators may be required to demonstrate active compliance, including the implementation of due diligence mechanisms, vessel screening procedures, and controls relating to cargo origin and applicable price cap regimes. Failure to do so may not only trigger restrictive measures at the EU level but could also give rise to secondary legal risks, including insurance coverage disputes, and reputational risk affecting access to international markets.
More specifically, if a port or terminal operator were placed on a sanctions list under EU sanctions regimes, persons subject to those regimes would generally be prohibited from engaging in transactions with the designated entity.
In practical terms, this could mean that:
- shipping companies may be unable to call at the port or load cargo there;
- commodity traders may be prohibited from purchasing or selling products stored or exported through the terminal;
- service providers, including agents, surveyors, and port service companies, could be restricted from providing services linked to the terminal.
Because many maritime and commodity transactions involve entities incorporated in jurisdictions applying Western sanctions regimes, the effect of such restrictions can be far broader than the formal legal scope of the sanctions themselves.
Furthermore, for the maritime industry, sanctions affecting a port often trigger sanctions clauses in charterparties and shipping contracts. Most modern charterparty forms include provisions allowing parties to refuse orders that would expose them to sanctions risk. As a result:
- charterers may no longer be able to nominate the sanctioned port;
- shipowners may lawfully refuse orders to proceed there;
- vessels already en route could be required to divert to alternative ports.
This can generate disputes regarding demurrage, off-hire, deviation, and allocation of additional costs, particularly where cargoes have already been sold or financing arrangements depend on delivery through a specific terminal.
Another immediate consequence concerns marine insurance and P&I club cover. Most insurers include sanctions exclusion clauses providing that coverage is suspended or excluded if performance would expose the insurer to sanctions risk. If a port operator were sanctioned, insurers may therefore decline to cover voyages involving the terminal. This can make it commercially impossible for vessels to trade there, since ships generally cannot operate without valid insurance and P&I cover.
Financial Sector Warnings
The EU’s position on the financial sector, as reflected in the letter of 5 March 2026, signals a further expansion of sanctions risk to financial institutions operating outside the EU. While EU restrictive measures are formally binding only on EU persons, the framework increasingly produces indirect, yet significant, legal effects for third-country banks and financial intermediaries.
In particular, the EU highlights its ability to target financial institutions that facilitate the circumvention of sanctions, including through the use of alternative Russian financial systems such as SPFS, SBP, or the Mir payment system. From a legal standpoint, this is not limited to participation in such systems per se. The relevant threshold is broader and captures conduct that “frustrates” EU sanctions or contributes to Russia’s war effort, which introduces a degree of interpretative flexibility in enforcement.
The primary tool referenced in the letter, a potential “transaction ban”, has far-reaching consequences. Where imposed, EU persons would be prohibited from engaging in any transactions with the identified institution. In practice, this can result in the effective exclusion of the institution from the EU financial system, including the inability to access correspondent banking relationships, EU-based clearing systems, or financial services provided by EU entities. The impact is therefore comparable to secondary sanctions, even if not formally labelled as such within the EU legal framework.
Furthermore, institutions may face termination of correspondent banking relationships, restrictions under contractual compliance clauses, and potential disputes with counterparties where transactions are blocked or rejected.
In more practical terms, banks subject to EU sanctions regulations are likely to refuse to process payments connected with sanctioned entities or infrastructure. In practice, this may affect:
- letters of credit used in commodity trading;
- payments for port services or storage;
- settlement of cargo purchase agreements.
Exposure of Third-Country Actors
One big takeaway from the 5 March 2026 letter is that EU sanctions are really starting to focus on how third-party actors fit into the picture. It is not solely about companies that are directly involved in trade or shipping anymore; they are now also observing and targeting those whose services or infrastructure might help facilitate those activities.
From a legal perspective, this reflects an expansion in the application of EU sanctions through indirect means. While third-country entities are not formally subject to EU jurisdiction, measures such as transaction bans effectively condition access to the EU market on compliance with EU sanctions objectives.
This approach comes with some legal and commercial risks for operators in areas that act as transit or logistics hubs. Even if they are not directly involved in any sanctioned activities, they might still face risks if their operations seem to help others bypass those sanctions.
Because of this, both infrastructure operators and financial institutions are finding it necessary to step up their compliance game. They are putting in place risk-based measures like doing their homework on partners, keeping an eye on trade flows, and strengthening internal controls to spot and tackle any potential sanctions-related issues.
How Sanctions Operate in Practice
In practice, sanctions do not operate through official lists only. Instead, their effects can be felt through indirect channels and on different stages of the chain; for example, when assessing risk, interpreting contracts, and changing behaviour to avoid any potential sanctions-related impediments. Therefore, even if a port or terminal is not itself listed, it might still be affected by those who rely on it, like shipowners, charterers, insurers, and banks.
Although the present discussion concerns EU sanctions, a significant proportion of maritime contracts, including charterparties, bills of lading, and insurance policies, are still governed by English law, and disputes arising out of such arrangements are frequently resolved before English courts or London-seated arbitral tribunals. As a result, English case law provides a well-developed and commercially grounded body of authority on how sanctions clauses are interpreted and applied in practice. Having said that, the UK Courts have long established that the sanctions are not applied in a black and white manner.
In Mamancochet Mining Ltd v Aegis Managing Agency Ltd in 2018, the English Commercial Court pointed out that a party can lean on a sanctions clause where performance could potentially expose the entire transaction to a real risk of breaching sanctions. This demonstrates how sanctions reshape existing commercial reality. Business decisions are often made based on the possible risk exposure, as opposed to an actual prohibition. The position was explored further in Lamesa Investments Ltd v Cynergy Bank Ltd (2020), where the Court of Appeal accepted that even the risk of secondary sanctions may justify a refusal to perform.
At the same time, the existence of sanctions risk does not automatically displace contractual arrangements. In MUR Shipping BV v RTI Ltd (2024), the UK Supreme Court confirmed that parties are not required to accept alternative methods of performance that fall outside the contract, even if such alternatives would avoid sanctions-related difficulties. In other words, the decision confirms that the sanctions may interrupt performance, but they do not necessarily, absent express contractual provision, change the parties’ agreed allocation of risk.
Final Remarks
In conclusion, the Kulevi scenario demonstrates that exposure to sanctions risk does not, in itself, justify restrictive measures. The European Commission’s decision, provided in its letter of 5 March 2026, opts for a more nuanced approach: recognising that compliance steps and constructive engagement by both the local authorities as well as the operator can address and positively resolve the legitimate concerns. Seen in this light, Kulevi is an example of how key infrastructure in third countries can continue to function responsibly within evolving compliance expectations.
[1] https://docs.rferl.org/ka-ge/2026/03/10/4b007789-c1a5-4d0a-cd92-08de3c914337.pdf
