Russian oil exports by sea may find ways to circumvent EU insurance ban: sources

Some shipping sources are unconvinced that an EU insurance ban will prevent shipowners from seeking Russian barrels as more distant alternative insurance providers remain an option, they said on June 15.

Tanker owners also take advantage of exorbitant freight rates for trips out of Russia, as that oil still finds homes despite a barrage of Western sanctions.

London’s influential marine insurance market is also likely to join the EU in an insurance boycott, making it even harder for Russian tankers and tankers carrying Russian oil to travel to various destinations.

However, Moscow’s oil exports continue and suppliers from other regions are likely to fill the gap, sources added.

“There are rumors that some Asian entities, possibly even Chinese insurers, may step in, in the absence of European providers,” said a maritime analyst.
Sanctions imposed by the EU in its sixth set of sanctions at the beginning of June included a ban on EU operators from securing and financing the maritime transport of Russian oil to third countries after a period of six-month break.

This affects a considerable volume of oil transported by sea. Russia is a major supplier of oil to the world, exporting more than 7 million bpd of crude oil and oil products, or about 13% of total oil trade.

Russian crude exports remained strong in May and June, but shipments of refined products have been hit in recent weeks, according to trade and shipping sources.

Super high freight

Shipowners still shipping Russian-sourced oil enjoy lucrative tariffs and are using the business to hedge against ‘hard times ahead’, with concerns such as decarbonisation and emissions likely to engulf the industry in the medium term. term.

“We will continue to do this until we are no longer able to. Advance the [emissions and decarbonization] regulation will hurt us, so right now the markets are treating us well,” said an official of a clean tanker owner. With continued pressure on the supply of middle distillates, of which Russia is an important supplier to Europe, freight rates from the Black Sea have increased.

Platts, part of S&P Global Commodity Insights, priced the Clean Black Sea-Mediterranean route for a cargo of 30,000 tonnes at $47.67/mt on June 14, its highest yet and 159% above from its level of February 23, the day before the invasion.

The dirty route from the Black Sea to the Mediterranean for a cargo of 30,000 tons was valued at $38.29/t on June 14. This is down from April’s highs of $46.50/t, but still 133% above its February 23 level.

With the continuing conflict between Ukraine and Russia in the Black Sea, threats to ship security also remain an issue as insurance premiums have increased since the invasion.

Shipments of petroleum products of Russian origin have been concentrated on a small group of shipowners in light of the outbreak of the conflict, and freight indications have increased accordingly.

With dwindling outbound volumes, it remains to be seen how much appetite shippers will retain for short sea shipments in the future, with loading schedules from major Black Sea refining hubs such as Novorossiysk and Tuapse showing lower volumes. month to month since the beginning of the conflict. .

Likely UK insurance ban

The UK has not yet banned the provision of insurance or financing for Russian maritime oil. However, some market participants expect this to happen in due course and said the expectation of a future ban is already discouraging insurance provision.

Peter McNamee, a partner at law firm Ince Gordon Dadds, said the reputational risk to insurers in the UK could be enough to close off that source to Russian offshore oil. “The London market will most likely refuse to put itself in a position where it breaches EU sanctions,” he told S&P Global on the sidelines of Posidonia 2022, a shipping industry event in London. Athens.

Russian counterparties and shippers carrying Russian oil will therefore have to look outside of London as well as the EU for cover. That coverage could come, for example, from the Russian state, McNamee said.

The UK ban would be a major blow to Russia’s oil trade, as London is a central player in the marine insurance industry. It is home to many businesses linked to the international group of Protection and Indemnity (P&I) clubs.
Source: Platts