European governments have eased back on efforts to curb trade in Russian oil, delaying a plan to shut Moscow out of the vital Lloyd’s of London maritime insurance market and allowing some international shipments amid fears of rising crude prices and tighter global energy supplies.
The EU announced a worldwide ban on the provision of maritime insurance to vessels carrying Russian oil two months ago, expecting co-ordinated action with the British government. However, the UK is yet to introduce similar restrictions. UK participation is pivotal to the effectiveness of any such ban because London is at the centre of the marine insurance industry.
Meanwhile, Brussels in late July amended some curbs on dealing with state-owned Russian companies, citing concerns over global energy security.
A joint UK-EU prohibition on maritime insurance would constitute the most comprehensive restriction to date on Russian oil, ending access to much of the global tanker fleet for Moscow’s exports.
But US officials have expressed concern that an immediate global ban on maritime insurance would push up prices by pulling millions of barrels of Russian crude and petroleum products off the market.
European and British officials told the Financial Times in May that the UK had agreed with the EU to co-ordinate a ban on insuring Russian oil cargoes.
However, Britain’s latest sanctions against Russia, approved by parliament in July, only prohibit providing insurance to vessels carrying Russian oil to the UK, and only after December 31. The legislation was introduced after the government promised to outlaw the import of Russian oil from the end of the year but does not ban the provision of services to shipments from Russia to other countries, UK officials said.
“There is no current UK ban affecting global shipments of Russian oil,” said Patrick Davison, underwriting director of the Lloyd’s Market Association, an industry group for insurers at Lloyd’s. “Given the global nature of the [re] insurance industry, the existence of the EU restrictions may well impact appetite for Russian oil shipments in London.”
He said Lloyd’s was in close contact with [the UK government] “and will work with them on any future sanctions they seek to introduce.”
The UK Treasury said it was still exploring the best course of action. “We stand ready to impose further sanctions on Russia and are working in conjunction with our allies at pace to ensure these can be implemented with maximum effect on the Russian economy,” it said.
The EU’s insurance ban was introduced on June 4 and remains in place. It prevents companies in the bloc from writing new insurance for any vessel carrying Russian oil anywhere. Existing contracts remain valid until December 5, when all such business will be banned.
However, the EU has amended part of its own sanctions to permit European companies to deal with some Russian state-owned entities, such as Rosneft, for the purpose of transporting oil to countries outside the bloc.
European companies will no longer be blocked from paying the likes of Rosneft, “if those transactions are strictly necessary”, for the purchase or transport of crude or petroleum products to third countries, a European Commission spokesperson told the FT.
The EU said in a statement that the measures were taken to “avoid any potential negative consequences for food and energy security around the world”.
The White House has been working since June to push G7 countries to support a price-cap mechanism that would allow some Russian oil to reach third countries as long as they agreed to pay a below-market price for the cargo.
Officials in Washington said the US and UK still plan to ban maritime services, including insurance, by the time the EU’s ban takes full effect in December. But they want an oil price cap in place first. US President Joe Biden is keen to reduce gasoline prices before midterm elections in November.
Sanctions lawyers said the EU appeared to be soft-pedalling its efforts to stem the global flow of Russian oil, and that there was new uncertainty among traders over the UK’s commitment to a global insurance ban.
Sarah Hunt, a partner at HFW, a law firm, said trading houses were inquiring whether it was now legal to buy Rosneft oil to ship to countries outside the EU.
“The new EU sanctions effectively permit the lifting of Russian crude by European companies. We were surprised by this,” she said.
Leigh Hansson, partner at Reed Smith, another law firm, said the EU’s sanctions amendment was a “big retreat”, adding that lawyers had also been expecting “more robust” measures by now from the UK.
Additional reporting by Alice Hancock and David Sheppard