EU officials have proposed a ban on insured ships that carry Russian oil, a move aimed at blocking Russia’s access to global oil markets and the revenues that have fueled its military invasion of Ukraine.
“In effect, it would be a very strong hindrance to export Russian crude,” said Lars Barstad, chief executive of Frontline Ltd.
which owns one of the largest tanker fleets in the world.
Mr. Barstad said his ships do not carry oil if the Frontline cannot insure against hazards such as hazards.
45% of Russia’s federal government budget for oil and gas revenues accounted for 2021, according to the International Energy Agency. Russian crude has continued to flow, though with increasing difficulties, since Moscow invaded Ukraine.
The insurance ban is part of a sixth batch of restrictions EU officials are preparing against Russia, including an embargo on the country’s oil-in-the-bloc year-end.
The embargo within Europe would be cut from what has historically been the biggest export market for its oil. Sanctions on insurance would hamper exports to buyers in Asia and elsewhere because most of the European companies are insurers.
The tactic was used by Europe a decade ago to curtail Iranian oil exports as part of its nuclear program.
The EU member states are among the hardest negotiations the insurance proposal has made, and all of it must sign off.
Greece, Cyprus and Malta, big shipping nations, have raised concerns. A number of Greek shipowners have contracts with major oil companies like Chevron Corp.
and Shell PLC to move Russian crude to clients in China and India.
In a bow to their concerns, the European Commission has issued a new draft of the sanctions proposals, which will take effect from one month to three months.
Diplomats say Brussels and the bloc’s biggest members, like Germany, also have a limited number of Seven Discussions to Seek Commitments in Japan, Canada and the US so as not to undercut Greek, Cypriot and Maltese shipping companies.
Germany holds the presidency of the G-7 this year. That could be enough to win back the insurance ban, say diplomats.
Shipowners and traders take out insurance policies to protect against the huge potential costs of tanker damage, oil spills and other hazards. One bucket is hull and machinery insurance, which covers physical damage to ships and is usually purchased at The Lloyd’s of London Market.
Protection and indemnity, meanwhile, covers liability against third parties, as in the case of collision or pollution. The International Group of P&I Clubs, which comprises member companies in the UK, Norway, the EU and elsewhere, provides P&I insurance to about 95% of the global tanker fleet.
SHARE YOUR THOUGHTS
Is insurance an effective financial weapon against Russia? Why or why not? Join the conversation below.
“The Clubs will always be compliant with the provision of insurance and reinsurance in Russia, Iran or other countries which have imposed trade, financing and other restrictions,” said its chief executive, Nick Shaw. Shipowners will need to look elsewhere for their third-party liability insurance arrangements where such prohibitions are in place, he added.
If the P&I Clubs do not provide insurance, “the biggest impediment to a top-class tanker owner is the ability to trade on its vessel, the marketplace and the credibility and reliability of insurance,” said Mike Salthouse, global director at North of England Protecting and Indemnity Association Ltd., one of the IG’s member clubs.
Russia’s state-aligned giant, Rosneft Oil Co.
In recent weeks, a large number of crude for struggling buyers have been found. The company with trading on sanctions, due to take effect May 15, is pushing some big traders to retreat from exporting Russian oil. Steep discounts at crude trades of Russia’s flagship Urals grade.
Another hurdle for Russian producers seeking to tap is their crude for foreign demand.
The sanctions would push Russian oil further into a shadow market facilitated by lesser-known traders and shipowners willing to operate without insurance. Frontline of Barstad. Such a market has enabled Iran and Venezuela to keep exporting oil in recent years, even though the underlying crude is subject to US sanctions.
For Russia, shipping uninsured oil might be more difficult than the case in Iran. Vessels leave the country’s ports in close proximity to the Baltic Sea sail to the Denmark en route to the North Sea. The authorities in Denmark could be reluctant to allow such ships to pass near its coastline, analysts and shipowners said.
Void of some insurers. As long as Turkey opts out of sanctions, insurers operating there will be able to provide cover to Russian exports, said Andreas Krebs, an international insurance broker at GrECo International Holding AG in Vienna. He expects such cover to be provided by Middle Eastern and Gulf-based insurance companies.
Still, Russian companies “will not be able to sell all the crude they are currently producing,” said Hugo De Stoop, chief executive of Euronav NV, another tanker owner who recently agreed to the merger.
Shipowners and traders already face the added insurance costs of doing business with some Russian ports of war risk premiums. That product, which saves trips for a number of protective ships, costs 0.04% of a ship’s value, said Marcus Baker, global head of marine and cargo at insurance broker Marsh Inc., a unit of Marsh McLennan Cos.
Shipowners trading in the Black Sea has recently paid more than 5% of the ship’s value per single trip, Said Baker.
To be sure, there are other markets Russia can tap, such as China and India, industry participants say, though it is unclear how much appetite there will be for the country’s commodities.
“Will the EU ban on European oil insurers from Russian oil cargoes coming out of Russia? Probably not, if there is a political will to import those cargoes elsewhere, ”said Mr. Salthouse.
—Costas Paris contributed to this article.
Write to Julie Steinberg at firstname.lastname@example.org, Laurence Norman at email@example.com and Joe Wallace at Joe.Wallace@wsj.com
Copyright © 2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8