The recent sanctions imposed by the European Union on Russian oil may result in the loss of industry-standard insurance for a large portion of the world’s tanker fleet, undermining US efforts to prevent a shock in the oil supply as reported by Yahoo Finance.
Threshold price
The bloc’s eighth round of sanctions states that if a tanker owner transports Russian crude above an agreed price threshold, their ship would be prohibited from getting EU services needed to ship the commodity, such as insurance, “in the future.”
Owners could avoid that fate by agreeing to transport oil that’s been bought at a capped price.
The measure, which would apply to all crude, is conditional on a Group of Seven agreement to cap the price of Russian oil and would stay in place as long as any price threshold is in force, according to people familiar with its scope.
The goal of the provision is to incentivize adherence to the cap while deterring breaches because it could pressure shipowners to choose between trading with Russia on Moscow’s terms or remaining in the international market.
The provision could polarize the tanker industry given that the biggest buyers of Russian oil — China and India — have made no commitment to paying a capped price.
Binary Choice
The clause also means that the price cap — which the US has also promoted as a means of freeing up Russian crude — presents a binary choice for players in the oil and tanker markets.
They can either consign themselves to a parallel Russian-dominated market or help the EU and G-7 push Russian President Vladimir Putin into accepting a capped price.
“In the event that a vessel under the flag of a third country has transported Russian crude oil or petroleum products purchased at a price above the price cap, it should be prohibited to provide technical assistance, brokering services, financing or financial assistance, including insurance, related to any transport in the future by that vessel of crude oil or petroleum products,” one of the relevant clauses says.
It’s not clear that this provision was coordinated with the US since Washington had been telling European allies that even countries who didn’t agree to the price cap plan could benefit from negotiating lower prices on Russian oil.
US officials have repeatedly emphasized that their primary goal is to prevent oil from being trapped in Russia by the EU’s ban on shipping services.
Price cap
Europe is home to a swath of insurance mutuals that form part of the International Group of P&I Clubs.
These firms cover their member firms — the shipowners — against risks including oil spills.
The continent is also at the heart of the world’s reinsurance market.
“Third-country ships that are found to have violated the price cap can never again use EU services, such as insurance and finance,” analysts at Rapidan Energy Group, an energy sector research group based in Washington, said in a note to clients.
It’s not clear how much cover would still be available to owners that carry Russian oil priced above a cap.
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Source: Yahoo Finance
