UK and India increase scrutiny on Russia’s shadow fleet and crude oil shipments, impacting maritime insurance and global oil exports. Along with its latest sanctions package, the UK announced further measures to counter what it described as “malign” Russian-backed maritime activity near its waters.
The UK has launched of broader Europe-wide scrutiny of Russia’s shadow fleet. India, a key buyer of Russian oil, has issued new guidelines targeting substandard vessels.
- Fresh sanctions unleashed against 18 Russian oil tankers and 4 liquified natural gas tankers – the largest sanctions action to date against Putin’s shadow fleet.
- The Foreign Secretary continues his personal mission to crack down on the full spectrum of Russian malign activity.
- The US and Canada sign up to the shadow fleet ‘Call to Action’ launched by UK Prime Minister Keir Starmer in July, bringing the total number of signatories to 47.
The UK will challenge shadow fleet vessels
The UK’s Department for Transport, in collaboration with the Joint Maritime Security Centre (JMSC) and the Maritime and Coastguard Agency (MCA), will now challenge shadow fleet vessels transiting the English Channel. Ships with “suspected dubious insurance” must provide valid proof of their insurance (see Aviation, Marine & Cargo Global Insurance Market Forecasts). Failure to comply could lead to detention, according to the government.
Approximately 10 shadow fleet tankers pass through the English Channel daily. UK foreign secretary David Lammy stated that these vessels endanger coastlines across Europe and beyond.
One such vessel, The Ruby, a Russia-linked bulk carrier carrying 20,000 tons of ammonium nitrate, has been stranded off the southeast coast of the UK. European nations have denied entry, citing safety concerns.
The Ruby was originally headed from the Russian city of Kandalaksha to Las Palmas in the Canary Islands but ran aground and sustained damage to its propeller, hull, and rudder. The ship later anchored in Tromsø, Norway, only to be turned away by the authorities due to safety concerns.
The UK’s actions often precede similar moves by the European Union
Other European countries are now expected to consider adopting similar measures. Baltic nations have discussed restricting older tankers carrying Russian oil, sharing insights with the UK.
Denmark, for instance, has been in talks with its neighbors about barring Russia’s shadow fleet from the Baltic Sea, especially following a collision involving a Russian tanker earlier this year. A third of Russia’s seaborne oil passes through the Danish straits, with around one-third of these ships lacking verified insurance.
The UK also imposed fresh sanctions on 18 Russian oil tankers and four LNG carriers, the largest British action to date against Russia’s shadow fleet. Sovcomflot, Russia’s top shipping line, was a key target.
The UK’s relentless action against the shadow fleet is putting grit into the system and starving Putin’s war machine of crucial revenues. The oil tankers targeted today have transported an estimated $4.9 bn in the last year alone. A significant number of the ships targeted by the UK to date have been forced to sit idling uselessly outside ports across the world, unable to continue pouring money into Putin’s war chest.
Sovcomflot, Russia’s largest shipping company, has been left desperately scrambling to rename and offload its vessels to dodge UK sanctions.
Today we have targeted even more of its ships, further turning the screw on the mechanisms the Kremlin uses to fund its illegal war. We are continuing to ratchet up pressure on the beleaguered Russian gas industry, with flagship company Gazprom posting a significant net loss of $6.9 bn in 2023 – its first annual loss in more than 20 years.
Foreign Secretary, David Lammy
Alongside action against the shadow fleet, the UK is sanctioning 4 more LNG tankers and Russian gas company Rusgazdobycha JSC.
According to Marine & Cargo Insurance Market Outlook, fire and explosion incidents cause the most expensive insurance claims in the marine industry, while at a time of rising exposures and inflation, cargo damage is the most frequent cause of loss.
While these results are gratifying, several clouds appear on the horizon. More than a year after Russia’s invasion of Ukraine, the growth of the shadow oil tanker fleet is the latest consequence to challenge shipowners, their crew and insurers.
Insurance for Russian crude oil shipments has become increasingly complex due to sanctions and restrictions imposed on Russia following its invasion of Ukraine.
Western insurers, particularly those based in Europe and North America, have limited or ceased providing coverage for Russian crude oil and related shipments.
This has led to significant changes in how Russian crude is insured, and it has given rise to the so-called “shadow fleet,” which refers to vessels and companies operating outside of traditional maritime insurance frameworks.
The key developments regarding insurance for Russian crude oil
- Sanctions and Insurance Restrictions
- Price Cap and Insurance Ban
- Emergence of the Shadow Fleet
- Non-Western Insurers
- India and China’s Role
Sanctions and Insurance Restrictions
The EU, US, and other Western countries have imposed sanctions on Russian oil exports, particularly seaborne crude. As a result, many global insurers, particularly those in the European and London markets, have stopped covering vessels transporting Russian crude. Major providers of Protection & Indemnity (P&I) insurance, which covers liability for shipowners, have either restricted or outright banned providing insurance for Russian crude.
Price Cap and Insurance Ban
A significant part of the sanctions includes a price cap imposed on Russian oil by G7 countries. Under this policy, insurance firms in G7 countries are prohibited from offering services to vessels carrying Russian oil if the oil is sold above a certain price cap. This measure is designed to limit Russia’s revenue from oil sales while allowing some oil to continue flowing to countries in need.
Emergence of the Shadow Fleet
In response to these restrictions, a fleet of older vessels has emerged to carry Russian oil. These ships, often referred to as the “shadow fleet,” are largely uninsured by traditional insurers and operate in legal gray areas. These vessels tend to be older, higher-risk, and operate with less regulatory scrutiny. Some of them use non-Western insurance providers, often with limited or unclear coverage, to bypass restrictions.
Non-Western Insurers
With Western insurers pulling back, Russia has increasingly relied on non-Western insurance companies, especially from countries like India, China, and the Middle East. These insurers provide the necessary cover for Russian crude shipments, although the extent and quality of the coverage may vary.
Additionally, Russia has explored establishing its own state-backed insurance schemes to replace the services that were once provided by Western firms.
Despite the EU/G7 countries’ sanctions on Russian oil, a majority of vessels carrying Russian oil and oil products are owned and/or insured in the EU and G7 countries. Before the war, Russia was incredibly reliant on Western owned or insured tankers to transport Russian oil globally.
Despite the strong set of tools to cut revenues for the Kremlin’s war chest, EU/G7 countries have allowed the proliferation of the Russian oil trade by insuring tankers transporting Russian oil, according to CREA research.
India and China’s Role
As major buyers of Russian crude, India and China have implemented their own guidelines to ensure that vessels carrying Russian oil meet basic insurance requirements. India’s directorate general of shipping, for example, has introduced new rules mandating that ships calling at Indian ports have proper Protection & Indemnity P&I insurance.
As a mutual insurance association, P&I clubs provide risk pooling, information and representation for members. P&I insurance covers risks that are not typically placed in the traditional insurance market.
Typical P&I cover can include a carrier’s third-party risks for damage caused to cargo during carriage, war risks, and risks of environmental damage such as oil spills and pollution.
Clubs should adopt an analytical approach when seeking increases, rather than a unilateral approach. When working with organizations a more detailed analysis of each member’s risk profile hand-in-hand with the context of club performance and the marketplace is encouraged.
This ensures that vessels have liability coverage for incidents like oil spills or accidents, even if they are part of the shadow fleet.
In July, at the European Political Community Summit, British Prime Minister Keir Starmer called for a united effort against the shadow fleet. Yesterday, the US and Canada joined 44 European nations in this initiative.
The International Maritime Organization (IMO) member states were urged to prevent illegal maritime operations by shadow fleet vessels. Signatories also called on flag states to ensure safety, pollution prevention, and best practices on these ships, while port states were asked to enforce safety and liability conventions, including valid insurance for ship-to-ship transfers.
The initiative promotes information sharing, coordination of responses to shadow fleet risks, and collaboration with the private sector to address these threats.
India’s directorate general of shipping has introduced new guidelines requiring all ships calling at its ports to have valid protection and indemnity (P&I) insurance. This move aims to ensure compliance with international maritime standards.
FAQ on UK and India’s Actions Against Russia’s Shadow Fleet
The UK is challenging vessels in Russia’s shadow fleet passing through the English Channel to provide valid insurance documentation. Ships failing to comply may be detained. Additionally, the UK imposed sanctions on 18 Russian oil tankers and four LNG carriers, targeting companies like Sovcomflot.
India now requires vessels carrying Russian oil to have valid Protection & Indemnity (P&I) insurance to meet international standards.
Insurance is crucial for shipping liability and risk management. Many Western insurers no longer cover Russian oil due to sanctions.
The shadow fleet consists of older vessels with questionable insurance and safety standards. These ships pose risks to maritime safety and environmental protection. European nations worry that accidents involving these ships could jeopardize their coastlines and maritime ecosystems.
Countries around the Baltic Sea, including Denmark, are discussing ways to restrict the shadow fleet’s access. They are considering measures to bar ageing Russian tankers from transiting their waters, especially after incidents like collisions involving these vessels.
Sanctions have led Western insurers to limit or cease coverage for Russian oil shipments. This has complicated insurance arrangements for Russia, pushing it to rely on non-Western insurers or operate vessels without standard insurance, increasing risks in maritime operations.
With Western insurers withdrawing, Russia is turning to insurers from countries like India, China, and those in the Middle East. These non-Western insurers provide necessary coverage for Russian oil shipments, though the extent and reliability of this insurance can vary.
AUTHOR: Yana Keller
