EU insurance ban targets Russian oil exports

An EU ban on insuring ships transporting Russian oil could potentially hurt Moscow more than its embargo on the country’s crude oil, analysts say.

The European Union recently unveiled the insurance ban in a sixth series of economic sanctions aimed at punishing Russia for its invasion of Ukraine.

In another blow, G7 leaders are seeking a price cap on Russian oil to further hurt Kremlin revenues.

The EU ban on insurance and reinsurance covering all sea transport of Russian oil comes as Moscow seeks to boost sales to China and India to offset the embargo.

The insurance ban “would have more far-reaching consequences for the oil market than the EU oil embargo,” said Commerzbank analyst Carsten Fritsch.

Companies are no longer allowed to transport oil from Russia by sea or insure such shipments.

EU insurers have until the end of this year to implement the ban, while insurers in the UK are expected to follow suit.

“There will be an impact, and there will be an impact on pricing,” said Marcus Baker, international head of marine at US broker Marsh.

A similar ban was applied in 2012 when the EU banned European insurers and reinsurers from insuring ships carrying Iranian oil.

The bloc had also imposed an embargo on buying Iranian crude oil as part of sanctions on Tehran’s controversial nuclear program.

Commercial ship operators require insurance for the ship, its cargo and for Protection and Indemnity (P&I) covering events such as war and environmental damage.

Mathieu Berrurier, managing director of marine insurance broker Eyssautier-Verlingue, told AFP potential payouts caused by such disasters would require huge amounts of cash.

This is leading to insurers forming P&I clubs that are “able to offer guarantees appropriate to the risks associated with events such as “a major oil spill or a collision with an ocean liner,” Berrurier said.

“Enormous sums of money are needed,” he stressed, adding that such disasters could potentially cost “billions of dollars.”

Former Russian President Dmitry Medvedev, who is deputy chairman of the Russian Security Council, has hinted that Moscow could sidestep the ban by providing state guarantees to cover oil exports.

That could allow Russia to self-insure and circumvent EU sanctions, he stressed.

“That’s true to an extent,” said analyst Livia Gallarati of consulting firm Energy Aspects.

But with up to 95 percent of the P&I insurance market being handled by insurers based in the EU and UK, experts say it will be difficult for Russia to circumvent the ban entirely.

“The market is so interdependent in Europe that it will be almost impossible” to escape the effects of the ban, an oil shipping executive told AFP on condition of anonymity.

“There isn’t a very mature and deep alternative insurance market out there,” the executive noted.

Late last week, it emerged that India had reportedly stepped in to offer certification services for some tankers carrying Russian crude.

That put a spotlight on this week’s G7 summit, which focused on more coordinated fiscal action against Russia.

“India is helping Russia to keep selling its oil despite Western sanctions,” said Commerzbank analyst Fritsch.

He added that India has issued safety certificates to more than 80 ships owned by a Dubai-based subsidiary of Russia’s state-owned shipping company Sovcomflot.

G7 leaders meeting in Germany on Monday and Tuesday condemned Russia’s invasion of Ukraine as “illegal and unjustifiable”.

“We reiterate our condemnation of Russia’s illegal and unjustifiable war of aggression against Ukraine,” the draft statement said.

The communiqué was issued after the G7 held talks with Indian Prime Minister Narendra Modi and leaders of Argentina, Indonesia, Senegal, South Africa and Ukraine.