The UK government will ban the provision of insurance for ships carrying Russian oil, the Treasury confirmed, cutting off access to the vital Lloyd’s of London market for seaborne Russian cargoes.

The move by the UK is a key step in the G7’s attempts to impose a price cap on Russian oil exports as the insurance ban would be waived for countries that sign up to the scheme.

  • The EU is also introducing a ban on services like insurance for ships transporting Russian oil, and the US is set to follow suit
  • Western governments are attempting to limit Moscow’s oil revenues
  • Russia has repeatedly said it will not sell oil to any country implementing the price cap
  • The UK Treasury said it had established a new team in the Office of Financial Sanctions Implementation to set up the licensing and enforcement system for the oil price cap
  • Insurance Companies will no longer be permitted to transport oil from Russia by sea, or to insure such shipments

Western governments are attempting to limit Moscow’s oil revenues that help fund its war in Ukraine, but are keen to keep Russian oil flowing in the international market as they fear a large drop in supply would push prices up sharply and harm the world economy.

Lloyd’s and Insurers Support to EU & UK Govt on Ship Insurance Ban for Russian Oil

Lloyd’s has said it will take steps to ensure market participants follow new UK government rules which effectively ban countries accessing insurance services to transport Russian oil unless it is bought at or below a price cap set by Western governments.

The British government said the legislation, which will take effect from December 5, would “prevent countries from using the UK’s services to transport Russian oil unless it is purchased at or below the oil price cap set by the . . . G7 and Australia”.

One of the key services that enable[d] the movement of oil by sea”, especially so-called protection and indemnity P&I insurance, relating to third-party liability. The UK is the global leader in P&I insurance, writing 60% of global cover.

The EU is also introducing a ban on services like insurance for ships transporting Russian oil, and the US is set to follow suit. At first glance it appears to be largely in line with what the US is proposing with a ban on services effective December 5.

According to a new data report from the Insure Our Future campaign, insurance company restrictions on oil and gas are finally starting to catch up with those on coal, with 62% of reinsurers having coal exit policies and 38% now having oil and gas exclusions.

The data is drawn from Insure Our Future’s annual scorecard, which ranks the top 30 global fossil fuel insurers on the quality of their fossil fuel exclusion policies.

At the time of last year’s COP, only Suncorp, Generali and AXA had adopted any restrictions on the insurance of conventional oil and gas projects. However, in the past year, Allianz, Aviva, Fidelis, Hannover Re, KBC, Mapfre, Munich Re, SCOR, Swiss Re and Zurich have all followed suit, bringing the total number of policies to 13.

As a result, the market share of insurers with oil and gas restrictions has grown from 3% to 38% among reinsurers, says the report, and from 5% to 15% among primary insurers.

It also adds that 18 insurers have ruled out support for Canada’s Trans Mountain pipeline and 16 pledged not to get involved in the East African Crude Oil Pipeline.

This year, Allianz, AXA and Axis Capital rank best for their coal exit policies, while Aviva, Hannover Re and Munich Re come out on top for their oil and gas exclusions.

At the bottom of fossil fuel rankings are a group of insurers which have yet to adopt any restrictions on providing cover to coal, oil or gas projects, which includes US insurers Berkshire Hathaway, Starr, and Bermudian carrier Everest Re.

Lloyd’s of London also scores very poorly, having announced a coal exit framework in 2020 but then backtracked by declaring it optional.

Any waiver under the price cap would only apply to third-party countries, as it would not supersede the UK, US or EU’s own plans to ban imports of seaborne Russian oil into their territories.

Lloyd’s and Insurers Support to EU & UK Govt on Ship Insurance Ban for Russian Oil

Russia has repeatedly said it will not sell oil to any country implementing the price cap. India and China — the two biggest buyers of Russian oil — have shown no indication that they will go along with the G7’s plan.

We’ve banned the import of Russian oil into the UK and are making good progress on phasing it out completely. This new measure continues to turn the screws on Putin’s war machine, making it even tougher for him to profiteer from his illegal war.

UK chancellor Jeremy Hunt

The legislation that takes effect on December 5 will initially only apply to crude oil exports but from February 5 will be extended to cover refined products like gasoline and diesel, mirroring the EU’s own timeline.

The UK Treasury said it had established a new team in the Office of Financial Sanctions Implementation to set up the licensing and enforcement system for the oil price cap; engage with industry to ensure readiness for the cap; and monitor the level and impact of the cap on an ongoing basis.

But the announcement did not make clear the precise mechanism for ensuring insurers knew the price of oil whose shipment they were covering.

Industry figures have been in discussions with the Treasury about a system of “attestations” that would protect insurers from action if they inadvertently carried overpriced oil.

Under the system — which the US has introduced for its oil price sanctions — insurers would have to seek a formal statement from anyone shipping Russian oil that it had all been bought at an appropriate price.

The system would exempt insurers from penalties if customers misled them about the price of the oil being transported.

Lloyd’s and Insurers Support to EU & UK Govt on Ship Insurance Ban for Russian Oil

Vitol, the world’s largest independent energy trader, has said it expects Russian oil exports to fall by as much as 1mn barrels a day after December 5 — or almost a fifth of its seaborne exports — as the country may struggle to get enough tankers willing to transport its oil if they cannot access western services.

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

In a further knock, G7 leaders are seeking a price cap for Russian oil to further hurt Kremlin revenues.

The EU insurance and reinsurance ban, covering all maritime transportation of Russian oil, comes as Moscow seeks to ramp up sales to China and India to help offset the embargo.

The insurance ban “would have further-reaching consequences for the oil market than the EU oil embargo”

Commerzbank analyst Carsten Fritsch

Insurance Companies will no longer be permitted to transport oil from Russia by sea, or to insure such shipments.

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

There is going to be an impact and there is going to be a pricing impact. A similar ban was used in 2012 when the EU prohibited European insurers and reinsurers from covering vessels carrying Iranian oil.

Marcus Baker, international head of marine at US broker Marsh

The bloc had also slapped an embargo on the purchase of Iranian crude as part of sanctions against Tehran’s controversial nuclear programme.

Commercial ship operators require insurance for the vessel, 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 that vast amounts of cash were required for potential payouts caused by such disasters.

Lloyd’s and Insurers Support to EU & UK Govt on Ship Insurance Ban for Russian Oil

This results in insurers forming P&I clubs that “are able to offer guarantees equal to the risks involved in” events including “a major oil spill or “collision with an oceanliner”, said Berrurier.

“Colossal amounts are needed,” he stressed, adding that such disasters can potentially cost “billions of dollars”.

Russia’s former president Dmitry Medvedev, who is deputy head of the country’s security council, has hinted that Moscow could get around the ban by providing state guarantees to cover oil exports.

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

“That is true to an extent,” said analyst Livia Gallarati at consultancy Energy Aspects.

But with as much as 95% of the P&I insurance market handled by EU and UK-based insurers, according to experts, it will be difficult for Russia to completely get around the ban.

The market is so heavily entwined in Europe (that it) is going to be almost impossible to escape the impact of the ban, an oil shipping executive told AFP on condition of anonymity.

“There is not a very mature and deep alternative insurance market out there,” the executive noted.

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