By Alex Longley (Bloomberg) —
Key figures in the insurance industry said rising Russian oil prices are making it harder for them to know if they can lawfully cover Russian cargoes.
Since December, buyers of Russian crude oil have only been allowed to access financial services from Group-of-Seven nations if the cargoes were sold at $60 a barrel or less. Part of that process involves entities like insurers getting attestations pledging the oil was bought below the cap.
But in Asia, Russian oil has been trading above $60 a barrel for much of this year, raising the prospect of violations for G-7 insurers if they cover the trade. Even in western Russia, export prices have been hovering just below the threshold all month.
That’s left insurers questioning whether they can rely on attestations to provide cover, a concern that intensified last week when the US Treasury published an alert on avoidance of the cap in Asia.
“For the clubs and the underwriters it’s a very uncomfortable position to be in,” Mike Salthouse, head of external relations at NorthStandard said at the Marine Insurance Asia conference in Singapore. “We’re reliant on a piece of paper. The reality is, it is very difficult to have any real confidence in that piece of paper.”
Until recently, Salthouse was chair of the sanctions committee of the International Group of P&I Clubs, which covers much of the world’s oil tankers against risks such as spills and collisions. NorthStandard is a member of the IG, as it’s known.
His comments are among the most explicit yet from an insurer about the pressures of having to help implement the cap.
In the first quarter, much of the oil that was sold above $60 was transported using services from firms in G-7 countries, according to a team of researchers who analyzed trade and shipping data. That would suggest widespread breaches of the rules, they said.
“When I get an attestation which is in compliance with the price cap, but I know that actually something different is happening in the background, how do I react on that?” Lars Lange, Secretary General of the International Union of Maritime Insurance, said at the same event. “This is something where no law can prepare you for these practical cases.”
Higher prices have made it harder for insurers, who get protection from sanctions if they have an attestation pledging that the oil is below the cap, but are still expected to do due diligence on shipments of Russian oil. Russian oil at the port of Kozmino was trading at $70.99 on April 24, according to Argus Media, whose prices are at the heart of the G-7 cap.
“What does customary due diligence — which we are all required to do — mean, when we know that the underlying sales are trading above the price cap,” Salthouse said.
© 2023 Bloomberg L.P.
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