EU insurance ban targets Russian oil exports

Issued by: 29.06.2022 – 05:22Changed: 29.06.2022 – 05:20

The European Union recently issued a ban on insurance under the sixth set of economic sanctions aimed at punishing Russia for its invasion of Ukraine.

In the future, G7 leaders are pushing for restrictions on Russian oil prices to further damage the Kremlin’s revenue.

The EU’s ban on insurance and reinsurance, which covers all maritime transportation of Russian oil, comes at a time when Moscow is seeking to increase sales to China and India to help offset the embargo.

“Further than the embargo”

The insurance ban would “have more significant implications for the oil market than the EU oil embargo,” said Commerzbank analyst Carsten Fritsch.

Companies will no longer be allowed to transport oil from Russia by sea or insure such supplies.

EU insurers are expected to enforce the ban by the end of this year, and Britain is expected to follow suit.

“It’s going to be an impact, and it’s going to be an impact on prices,” said Marcus Baker, head of the international shipping division of American broker Marsh.

A similar ban was used in 2012, when the EU banned European insurers and reinsurers from covering vessels carrying Iranian oil.

The bloc has also imposed an embargo on the purchase of Iranian oil as part of sanctions against Tehran’s controversial nuclear program.

Operators of commercial vessels require insurance of the vessel, its cargo, as well as protection and compensation (P&I), which cover events such as war and environmental damage.

Mathieu Berrie, managing director of marine insurance broker Eyssautier-Verlingue, told AFP that huge amounts of cash were needed for potential payments caused by such disasters.

As a result, insurers are creating P&I clubs that are “able to offer guarantees equal to the risks” of events, including a “major oil spill or” collision with an ocean liner, “Berrie said.

“Huge sums are needed,” he said, adding that such disasters could potentially cost “billions of dollars.”

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

This could allow Russia to insure itself and circumvent EU sanctions, he insisted.

“This is to some extent true,” said analyst Livia Galarati of the consulting firm Energy Aspects.

But, according to experts, given that 95 percent of the P&I insurance market is occupied by insurers from the EU and the UK, Russia will find it difficult to completely circumvent the ban.

“The market is so heavily intertwined in Europe (that it is) it will be almost impossible,” to avoid the impact of the ban, the AFP executive told AFP on condition of anonymity.

“There is not a very mature and deep market of alternative insurance,” said the head.

India “helps Russia”

Late last week, it became known that India had reportedly intervened to offer certification services to some tankers carrying Russian oil.

This drew attention to this week’s G7 summit, which focused on more coordinated financial action against Russia.

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

He added that India has provided safety certification for more than 80 vessels owned by a subsidiary of the state-owned Russian shipping company Sovcomflot in Dubai.

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

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

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

© 2022 AFP