- Bloc’s plan for oil-price cap includes shipping restrictions
- Provision may undermine US aim of keeping oil prices low
According to Bloomberg’s article published on October 18, 2022, the European Union’s latest sanctions on Russian oil could result in the removal of industry-standard insurance from much of the world’s tanker fleet, a move that threatens to undermine US efforts to avert an oil supply shock.
The bloc’s eighth round of sanctions says that if a tanker owner is transporting Russian crude oil above an agreed price threshold, his ship must “go forward” not receive EU services necessary to transport the commodity, such as B. Insurance. Owners could avoid this fate by agreeing to ship oil purchased at a limited price.
The measure, which would apply to all crudes, is conditional on an agreement by the Group of Seven to cap the price of Russian oil and would remain in place as long as a price cap is in place, according to people familiar with its scope.
The purpose of the provision is to incentivize compliance with the cap while discouraging non-compliance, as this could pressure shipowners to choose between trading with Russia on Moscow’s terms or staying on the international market. The provision could polarize the tanker industry as the biggest buyers of Russian oil – China and India – have not committed to paying a capped price.
The clause also means that the price cap – which the US has also promoted as a means of freeing up Russian crude – presents a binary choice for players in the oil and tanker markets. They can either surrender to a parallel Russian-dominated market, or help the EU and G-7 persuade Russian President Vladimir Putin to accept a capped price.
“In the event that a ship flying the flag of a third country has transported Russian crude oil or petroleum products purchased at a price above the price cap, it should be prohibited to provide technical assistance, brokering services, financing or financial assistance, including insurance , in connection with future shipments of crude oil or petroleum products by this ship,” reads one of the relevant clauses.
It’s not clear that this provision was coordinated with the US, as Washington had told European allies that even countries that didn’t agree to the price cap plan could benefit from negotiating lower prices for Russian oil. US officials have repeatedly stressed that their main goal is to prevent oil from being trapped in Russia by the EU export ban.
There are a number of mutual insurance companies in Europe that are part of the International Group of P&I Clubs. These firms insure their member firms – the shipowners – against risks including oil spills. The continent is also at the heart of the global reinsurance market.
“Third-country vessels that are found to have breached the price cap will never again be able to use EU services such as insurance and finance,” said analysts at Rapidan Energy Group, an energy sector research group based in Washington. in a notice to customers. “As many shipowners around the world will be reluctant to permanently give up their access to EU shipping services, we anticipate that they will avoid non-compliant cargo.”
They added: “This will force Putin to either accept the price cap (a course he has explicitly ruled out) or curtail exports and halt production.”
It is not clear how much coverage would still be available for owners who hold Russian oil at a price above a cap. At the moment, the UK, another major insurance and reinsurance hub, has not announced a ban to match Europe’s.
