EU ban on insuring Russian ships signals potential oil market risk
2nd June 2022 13:03 GMT

 

The West appears keen to choke off Russian oil through seaborne trade. But while the EU is determined to stop buying 90% of Russian oil by the end of the year, it is a proposed ban on the insurance and reinsurance of Russian tankers by EU companies that could have wider consequences.

 

Ursula von der Leyen, president of the European Commission, confirmed in a speech that there is a ban on insurance and reinsurance of Russian ships by EU companies. But there is still scant clarification over whether this includes tankers transporting Russian oil. Maritime specialists are still waiting on details and, so far, the risk appears to be limited.

“In the short term, it seems there will be a wind-down period so it will not be a cliff edge and both sides will have time to adjust,” said Neil Roberts, head of marine and aviation at the Lloyd’s Market Association. "Russia will seek new customers as it will not wish to lose the income."

“Some carriers have already taken a stance that they will not write Russian business in general, but others will need to do extra due diligence to ensure they do not breach the sanctions,” he said.

The EU’s sixth package of sanctions against Russia also disconnects Russia’s biggest bank Sberbank from the Swift international banking payment system, bans insurance and reinsurance of Russian ships by EU companies, and bans three major Russian state-run broadcasters in the EU.

Insurance could also add to already high shipping costs, with freight rates assessed by S&P Global Commodity Insights at elevated levels this year.

Freight rates for an Aframax carrying a 100,000 mt crude cargo on a Baltic to UK Continent route have more than doubled in recent months. Platts, part of S&P Global, assessed this route at $29.78/mt on May 31 from $12.59/mt on Feb. 23, the day before Russian invaded Ukraine.

 

Downside risks

 

However, there is some expectation in the maritime industry that the UK will join the EU in an insurance boycott, which would make it very cumbersome for Russian tankers and tankers carrying Russian oil to travel to various destinations.

The UK ban would be a big blow to Russian oil trade as London is a pivotal player in the marine insurance sector. It is home to many companies linked to the international group of Protection and Indemnity (P&I) Clubs.

A spokesperson at the UK’s Department for Business, Energy and Industrial Strategy was unavailable for comment.

But even India, which has bought more Russian oil in 2022 than it did in the whole of 2021, and China, which is traditionally Russia’s biggest buyer, could still charter ships to import Russian crude.

Whether this remains the case depends on how hard a line is taken. A similar ban on tankers carrying Iranian oil by the US along with secondary sanctions, pushed India and other Asian refiners in halting Iranian crude imports.

“Risks to our supply forecast through the end of 2022 are greater to the downside from potential insurance restrictions, secondary US sanctions, an inability to re-route product exports, or unilateral Russian curtailments,” said Paul Sheldon, an analyst at S&P Global.

Some European-owned and European-flagged ships are still transporting Russian oil since the invasion of Ukraine.

Insurance premiums for some voyages near Ukraine and the Black Sea remain very high since earlier in the year.

On Feb. 15, Ukrainian and Russian waters in the Black Sea and the Sea of Azov were placed under a high-risk category by the Joint War Committee of the Lloyds Market Association.

This pushed up insurance premiums for ships transiting through these areas, adding to the cost of transporting oil and commodities in the region.

Russia’s seaborne exports of crude remained close to post-pandemic highs last month, according to shipping data, as a surge in buying by Indian refiners continued to hamper Western efforts to hit Moscow’s oil revenue over its war on Ukraine.

Shipped crude exports from Russian ports averaged 3.71 million b/d in May, off a post-pandemic high of 3.89 million b/d last month, but 17% higher than pre-war exports in February, according to preliminary data from shipping analytics firm Kpler. Before April, Russia’s seaborne crude exports were last so high in October 2019.


Platts ,
2nd June 2022 13:03 GMT