Russia relies on Western insurance for half of its oil supplies Ship’s crew

From Bloomberg News (Bloomberg) —

Russia still relies on western insurers to insure more than half of the tanker fleet that exports its oil, according to data compiled by Bloomberg, and the country’s energy authorities are raising concerns about the situation.

The Group of Seven and its partners in the European Union have mandated that any shipment of crude oil using services in their member countries must be sold below a price cap of $60 per barrel. The measure is intended to dampen the Kremlin’s energy export revenues and limit its ability to continue funding the invasion of Ukraine.

As of early December, between 50% and 60% of ships that have transported Russian oil are protected against shipowner liability by members of the London-based International Group of P&I Clubs, according to data compiled by Bloomberg based on information in shipping Equasis data system. The data does not indicate whether the vessels are covered by hull or cargo insurance.

This reliance on Western reporting limits Russia’s ability to negotiate higher prices for its oil, a major source of revenue for the state budget. It could also leave the country’s exports vulnerable to disruption if the G-7 decides to tighten restrictions.

“Russia’s high reliance on insurance from G-7 and European countries for the transportation of oil means that the price cap coalition has a strong influence,” said Meri Pukarinen, Europe-Russia politician at the Center for Energy and Air Research in Helsinki by email. The West could take advantage of this by lowering the cap, she said.

High-ranking figures in the Russian oil industry have highlighted this situation as one of their main concerns.

“In the current conditions, it is important to create new tools, new insurance and reinsurance systems that will be accepted by our customers, our partners,” Russian Deputy Prime Minister Alexander Novak said on Tuesday at the Energy Ministry’s annual meeting in Moscow.

The pressure of sanctions on the Russian oil industry will increase this year, Alexander Dyukov, chief executive officer of Gazprom Neft PJSC, said at the same event. The nation must prepare by developing independent financial, transportation and oil trading infrastructure, he said.

Limited options

The data, compiled by Bloomberg, aligns with findings from CREA, which estimated that in February insurers from G-7 and European nations provided shipowner liability coverage for nearly 60% of all tankers carrying Russian crude oil. In early 2022, just before the war in Ukraine, the share of large foreign insurers was close to 80%, CREA data shows.

The remaining ships carrying Russian oil will be backed by either Russian or unknown suppliers, according to Bloomberg. These shipments could potentially find their way to customers willing to pay above the price cap.

Russia’s domestic insurance options are limited. Moscow-based Ingosstrakh Insurance Co., which is partly owned by Italy’s Assicurazioni Generali SpA, announced earlier this month that it will be revising its protection and indemnification portfolio to ensure it is fully compliant with international sanctions. The Russian National Reinsurance Company, tasked with providing state-backed coverage for all sanctioned Russian sectors, including shipping, has itself been banned from the European market.

Price cap compliance

Western P&I coverage data has limitations and an entry in the Equasis system is no guarantee that the insured tanker will only transport crude oil sold below the price cap. Under the EU regulationsInsurers are required to obtain certification from their customers that Russian crude oil shipped on the covered tankers is in compliance with the cap.

If a certificate is falsified, the insurer is not in breach of sanctions as long as they can show that they acted in good faith. In addition, the EU does not require insurers to regularly report their data to the authorities. Companies are only required to keep their records for five years in case of investigation.

The opacity of Russian oil trading makes price information difficult to access. The US Treasury Department estimates that about 75% of Russia’s oil could be moved outside the price cap, while the International Energy Agency estimates that the country’s crude oil shipments were sold well below the price cap on average in February.

Both the US government and the IEA say the restrictions are doing their job by curbing Russia’s fiscal revenues while keeping oil flowing to global markets.

© 2023 Bloomberg LP

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