EU Regulators Bans Insurance on Russian Oil Tankers

Lars Barstad, CEO of

Frontline Ltd.

owns one of the largest oil tanker fleets in the world.

Mr. Barstad said his ships would not carry oil if Frontline could not secure the ships against hazards such as environmental damage.

According to the International Energy Agency, oil and gas revenues account for 45% of the Russian federal government’s budget in 2021. Russian crude oil has continued to flow, albeit with growing difficulties, since since Moscow Invades Ukraine.

The insurance ban is part of a sixth series of restrictions EU officials are preparing against Russia, including the country’s oil import embargo in the block at the end of the year.

An embargo against Europe would cut off Russia from the biggest oil export market in history. Insurance sanctions will hamper exports to buyers in Asia and elsewhere because European companies underwrite much of the world’s oil trade.

This tactic was effectively used by Europe a decade ago to limit Iran’s oil exports as part of an effort to force Tehran to negotiate over its nuclear program.

The insurance proposal has had to go through tough negotiations among EU member states, all of which must sign off on the insurance proposal in order to proceed.

Greece, Cyprus and Malta, major shipping nations, have raised concerns. Some Greek ship owners have contracts with big oil companies like

Chevron Corp.

and Shell PLC to deliver Russian crude to customers in China and India.

In response to their concerns, the European Commission, which presented a new draft of the sanctions proposals on Friday, suggested extending the time before the measure comes into force from one month to three months.

Diplomats said Brussels and larger members of the bloc, such as Germany, have also promised to use the Group of 7 discussions to seek commitments from Japan, Canada and the US not to cut carriers. loads of Greece, Cyprus and Malta.

Germany holds the presidency of the G-7 this year. Diplomats say that could be enough to win support for the insurance ban.

Shipowners and traders take insurance policies to protect against potentially large costs from tanker damage, oil spills, and other hazards. A crate is hull and machinery insurance, covers physical damage to the ship and is usually purchased at Lloyd’s of London market.

Meanwhile, protection and indemnification includes liability from third parties, as in collision or pollution cases. The International Group of P&I Clubs, which includes member clubs in the UK, Norway, the EU and elsewhere, provides P&I coverage for approximately 95% of the tonnage of the global tanker fleet.

Chief executive Nick Shaw said: “The club will always comply with regulations prohibiting the provision of insurance and reinsurance whether in the context of Russia, Iran or other countries that have imposed trade restrictions. commercial, financial and other restrictions. Shipowners will need to seek out their third-party liability insurance arrangements where such prohibitions exist, he added.

Mike Salthouse, global director at Northern England Indemnification and Protection Association Ltd, one of IG’s member clubs.

The giant associated with the state of Russia,

Rosneft Oil Co.

, struggled to find a buyer for the huge amount of crude oil in recent weeks. Sanctions on dealings with the company, effective May 15, is driving some big traders withdraw from Russia’s oil exports. Russia’s leading Urals crude oil trades at a steep discount.

Insurance sanctions will add another setback for Russian producers looking to tap foreign demand for their crude.

Sanctions will push Russian oil in a shadow market facilitated by lesser-known merchants and ship owners willing to operate without insurance, according to Frontline’s Barstad. Such a market has allowed Iran and Venezuela to continue exporting oil in recent years, even though crude is essentially subject to US sanctions.

For Russia, shipping uninsured oil may be more difficult than in the case of Iran. Vessels leaving the country’s ports in the Baltic Sea sail close to the Danish coast on their way to the North Sea. Analysts and ship owners say Danish authorities may be reluctant to allow such ships to pass near its shores.

Other insurers can fill the gap. Andreas Krebs, international insurance broker at GrECo International Holding AG in Vienna, said that as long as Turkey refuses the sanctions, insurers operating there will be able to provide insurance for goods. Russian exports. He expects such coverage to be offered by insurers based in the Middle East and the Bay Area.

However, Russian companies “will not be able to sell all the crude they currently produce,” said Hugo De Stoop, chief executive officer of the company.

Euronav

NV, another oil tanker owner recently agreed to merge with Frontline.

Shipowners and merchants have faced increased insurance costs when doing business in some Russian ports in the form of war risk premiums. That product, which protects the ship over the course of a year, typically costs 0.04% of its value, said Marcus Baker, global head of marine and cargo at insurance brokerage Marsh Inc.

Marsh McLennan

Cos.

Mr. Baker said merchant ship owners in the Black Sea recently paid more than 5% of the value of the ship per voyage.

To be sure, yes other markets that Russia can exploitsuch as China and India, industry participants said, although the extent of covetousness for the country’s goods remains unclear.

“Will the EU ban on European insurers prevent Russian oil shipments out of Russia? Mr. Salthouse said.

—Costas Paris contributed to this article.

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