By Nikos Chrysoloras, Alberto Nardelli, Alex Longley and Alaric Nightingale (Bloomberg) —
The European Union is seeking to go beyond an import ban on Russian crude, targeting insurers in a move that could dramatically impair Moscow’s ability to ship its oil anywhere in the world.
The bloc is proposing to ban European vessels and companies from providing services — including insurance — linked to the transportation of Russian oil and products globally as part of its new sanctions package, according to officials and a draft document seen by Bloomberg.
While member states are still wrangling over the terms, it’s a potentially powerful tool because 95% of the world’s tanker liability cover is arranged through a London-based insurance organization called the International Group of P&I Clubs that has to heed European law.
Without such cover, Russia and its customers would have to find alternatives for risks including oil spills and mishaps at sea that can quickly run into multi-billion-dollar claims.
“I think we will see insurers being very cautious,” said Daniel Martin, a partner who advises traders, shipowners, insurers and brokers on sanctions at law-firm HFW. “To the extent that the EU has a lever because it has a dominant position in insurance, then I would expect it to use that to make sure the sanctions are as multilateral as possible.”
The cover from the International Group is a basic part of contracts for the transportation of most oil cargoes. The IG, as it’s known, provides reinsurance if claims exceed what the group’s 13 individual member clubs cover.
And there’s precedent: Insurance is one of the key means by which the U.S. and Europe successfully limited Iran’s oil exports. Individual countries responded to those steps by organizing cover directly, although IG insurance is widely preferred by most big companies.
The move — if implemented in full — dramatically increases the stakes with Moscow. The insurance measures come on top of the EU’s plan to ban imports of Russian crude and refined products by the end of the year.
The restrictions on services would extend to providing “directly or indirectly, technical assistance, brokering services, financing or financial assistance, or any other services related to the transport, including through ship-to-ship transfers, to third countries of crude oil and petroleum products which originate in Russia or have been exported from Russia.”
The bloc wants this part of the package to come into effect by early June, though member states are still debating the details and sign-off has to come from all countries.
Experts from the various member states will be going over the texts today and providing feedback before ambassadors reconvene Thursday for the next round of discussions, a diplomat said. The diplomat said it was difficult to predict what the final agreement would look like before negotiations began in earnest, but noted that the restrictions on shipping to third countries would need to work in tandem with an EU phaseout of Russian oil.
The proposed rules also ban European citizens and companies incorporated in Europe from transporting Russian oil anywhere in the world, not just to the continent. This means that vessels owned, chartered or controlled by European entities and individuals, even if they don’t fly the flag of one of the EU’s member states, can’t transport crude oil and petroleum products which originate in Russia.
Greece, Cyprus and Malta raised questions about the ban and whether it would help Europe achieve its aims without harming European businesses, according to two diplomats familiar with the matter. Greece and Cyprus have large shipping industries while Malta is a so-called flag state, where companies can register their vessels for ownership purposes.
–With assistance from Ewa Krukowska, Maria Tadeo, Jack Wittels, Alaric Nightingale and John Follain.
© 2022 Bloomberg L.P.
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