In a setback for Energy Transfer LP’s Dakota Access Pipeline (DAPL), judges with the U.S. Court of Appeals for the D.C. Circuit on Tuesday upheld an earlier ruling that vacated a key federal permit issued to the controversial oil conduit.

The appeals court affirmed U.S. District Court Judge James Boasberg’s ruling last year that the U.S. Army Corps of Engineers violated the National Environmental Policy Act when it issued an easement to cross under Lake Oahe without preparing an environmental impact statement (EIS).

The crossing of the large reservoir, behind the Oahe Dam on the Missouri River that begins in central South Dakota and continues north into North Dakota, has been a focal point for Native American tribes, including the Standing Rock Sioux Tribe, seeking to stop...