Russia still relies on Western insurers to cover more than half of the tanker fleet that exports its oil, according to data compiled by Bloomberg, and the country’s energy officials are expressing concern about the situation.
The Group of Seven and its partners in the European Union have decreed that any shipment of crude with services based in its member countries must be sold below a maximum price of $60 a barrel. The move is designed to curb the Kremlin’s energy export revenue, limiting its ability to continue financing the invasion of Ukraine.
Since early December, between 50% and 60% of ships that have carried Russian oil are protected against shipowners’ liability risks by members of the London-based International Group of P&I Clubs, according to data compiled by Bloomberg from Equasis shipping information. system The data does not indicate whether the vessels are covered by hull or cargo insurance.
This reliance on Western hedging limits Russia’s ability to negotiate higher prices for its oil, a key source of revenue for the nation’s budget. It could also leave the country’s exports vulnerable to disruption if the G-7 decides to tighten restrictions.
“Russia’s high reliance on insurance from the G-7 and European countries for oil shipments means that the price cap coalition has strong influence,” said Meri Pukarinen, head of Europe-Russia policy at the Center for Research on Energy and Clean Air based in Helsinki. by mail. The West could take advantage of this by lowering the limit, he said.
Senior figures in Russia’s oil industry have highlighted this situation as one of their main concerns.
“In the current conditions, it is important to create new instruments, new systems of insurance and reinsurance that are accepted by our customers, our partners,” Russian Deputy Prime Minister Alexander Novak said on Tuesday at the Energy Ministry’s annual meeting in Moscow
The pressure of sanctions on the Russian oil industry will only increase this year, Alexander Dyukov, CEO of Gazprom Neft PJSC, said at the same event. The nation must prepare by developing an independent financial, shipping and oil trading infrastructure, he said.
Limited options
The data compiled by Bloomberg is in line with the findings of CREA, which estimated that insurers from the G-7 and European nations in February offered shipowners liability coverage for nearly 60 percent of all ships tank carrying Russian crude oil. In early 2022, just before the war in Ukraine, the share of major foreign insurers was close to 80%, CREA data show.
The rest of the ships carrying Russian oil, according to data collected by Bloomberg, are covered by Russian or unknown suppliers. These shipments could find their way to customers willing to pay above the price limit.
Insurance options in the country of Russia are limited. Moscow-based Ingosstrakh Insurance Co., which is owned by Italy’s Assicurazioni Generali SpA, said earlier this month it will review its protection and indemnity portfolio to ensure it is fully compliant with international sanctions. The National Reinsurance Company of Russia, responsible for providing state-backed cover for all sanctioned Russian sectors, including maritime, has been excluded from the European market.
Compliance with the price limit
Data on Western P&I coverage has its limits and an Equasis system entry is not a guarantee that the insured tanker will only carry crude sold below the maximum price. Under EU regulations, insurers must obtain certificates from their customers that Russian crude shipped in covered tankers complies with the limit.
If a certificate were to be falsified, the insurer is not considered to be in breach of the sanctions as long as it proves that it has acted in good faith. In addition, the EU does not require insurers to report their data to the authorities on a regular basis. Companies are only required to keep their records for five years in the event of an investigation.
The opaque nature of Russian oil trading makes it difficult to access price information. The U.S. Treasury estimates that about 75 percent of Russia’s oil could move outside the price cap, while the International Energy Agency estimated that in February the country’s crude cargoes averaged they were sold well below the price limit.
Both the US administration and the IEA say the restrictions are doing their job by reducing Russia’s budget revenue while keeping oil flowing to global markets.
Photo Credit – iStock.com/Dikuch
