Details of EU Ban on Russian Coal and Fertilizers Jolts Ship Insurers

Bloomberg
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August 15, 2022

By Alex Longley and Alberto Nardelli (Bloomberg) —

The European Union jolted insurers and shippers by clarifying that a ban on EU entities servicing exports of Russian coal and some fertilizers applies to shipments anywhere in the world.

An EU ban on imports of Russian coal and other goods into the 27-nation bloc started on Aug. 10, following a wind-down period of four months. In a clarification, the bloc said the sanctions also prohibit EU operators from providing services — such as financing and insurance — to all shipments of such products originating in Russia.

“The prohibition relating to coal and to certain fertilizers refers both to the “purchase” and the “transfer” of these goods, irrespective of final destination,” Arianna Podesta, a European Commission spokeswoman, told Bloomberg in an email. Those sanctions extend to financing and insurance by EU companies, irrespective of the origin of the company performing the transfer, she said.

European companies have previously been shipping and servicing Russian fertilizers. The insurance industry appeared surprised by the clarification, which came on the day the sanctions on coal became operative.

“If you’re an EU shipowner and you’ve loaded Russian coal going to a non-EU third country, it is now an unlawful trade,” said Mike Salthouse, global claims director at The North of England P&I Association Ltd. and chair of the sanctions committee of the International Group of P&I Clubs. “That has created some considerable difficulties.”

A circular sent by UK P&I, one of the largest protection and indemnity insurance groups in the world, suggests the industry had previously assumed the ban on transfers and services wouldn’t apply to export destinations outside the EU.

EU Jurisdiction

Most of the P&I clubs that comprise the international group are subject to the jurisdiction of the EU, according to the circular. “All IG Clubs, including those that are domiciled outside the territory of the EU, rely on a reinsurance program that is heavily dependent on the participation of reinsurers that are domiciled within the EU,” it said.

The UK club is a member of the International Group of P&I Clubs, which collectively cover about 90% of the world’s ocean going vessels for risks including spillages. Other clubs subsequently issued similarly worded circulars. 

The coal ban was approved by the bloc in April as part of a fifth package of sanctions. The EU said at the time that it would affect a quarter of all Russian coal exports, representing annual revenues of about 8 billion euros ($8.2 billion).

Restrictions on Russian seaborne oil imports start to kick in later this year. Those measures will also include a ban on related services, including insurance, that are used to ship oil globally.

EU measures do allow for some exemptions, such as on humanitarian grounds. The import into the EU of set quota-based volumes of certain Russian fertilizers is permitted. Last month, the EU introduced corrections to several earlier restrictions to allow transactions with sanctioned entities when essential to the shipment of food, agricultural goods and oil to third countries outside the bloc.

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