November 26, 2022

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Doubts about Russia's exclusive oil ceiling raise insurer's concerns about ships leaving at sea

Doubts about Russia’s exclusive oil ceiling raise insurer’s concerns about ships leaving at sea

LONDON/BRUSSELS (Reuters) – Two senior oil industry executives told Reuters that tankers laden with oil risked being left at sea if insurers did not come up with urgent clarification on an incomplete plan of the Group of Seven and the European Union to cap the price of Russian crude.

The Group of Seven, which includes the United States, Britain, Germany and France, agreed in September to impose a lower price on Russian oil sales.

US officials said the move, which is due to start on December 5, is aimed at allowing it to continue the flow, to head off a potential price shock after the EU’s blanket ban was ratified in June.

With only three weeks left, time is running out to convince the freight services industry that it will work.

Concerns center around a scenario in which insurers discover that oil in transit at sea, which is believed to have been sold below the maximum price, is in fact being sold above it.

This would lead to insurance coverage being withdrawn as well as buyers refusing to accept delivery, leading to financial and logistical problems and environmental risks.

George Voloshin, a global financial crime expert at ACAMS, the association of Certified Anti-Money Laundering Professionals that consults with oil industry bankers, traders and insurers, said.

If insurance is withdrawn mid-flight, buyers and traders will have to figure out what to do with a stranded shipment potentially subject to sanctions, complicating a strategy to deprive Russia of funds over its invasion of Ukraine.

“It’s probably going to be very messy,” Voloshin said.

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A European Commission official said the EU understands that more additional details will be needed as time is limited for companies to learn about their commitments, but that the issue must be dealt with at the G7 level.

The official spoke to Reuters on condition of anonymity because they were not authorized to speak about the matter.

US State Department Ambassador James O’Brien, who heads the coordination of sanctions against Russia, said the G7 countries would be ready with all operational details and that technical talks were underway on pricing and governance.

Siege Islands

But if information gaps persist, oil-filled tankers can be left uninsured and stranded near ports, posing a major safety problem for neighboring countries in the event of a spill, as well as any clean-up costs.

“In this situation, the ship will be out of danger, the financial and technical services will be withdrawn, and no one will take delivery of the shipment,” Mike Salthouse, head of claims at Britain-based global ship insurer North told Reuters.

“This would be a bad development as no one wants unsecured ships to sit off the coast,” he added.

Salthouse said a ship owner who was likely to earn nothing for several months “would insure that any decision he made about moving freight in the future,” adding that this was likely to act as a disincentive.

“If it happens too often, it will go against what the EU and the G7 coalition are trying to achieve.”

Although the European Union ratified the price caps last month, insurers are citing unpublished legal details that must comply with incomplete but more detailed US Treasury guidance, particularly with regard to guarantees that insurers will not face sudden hitches. In the middle of the ship’s voyage.

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“We need similar regulation in the G7, ie the US – where we have interim guidelines at the same time – the UK and the EU,” said Lars Lange, Secretary General of the International Maritime Insurance Union (IUMI). .

“We fear that if we get different regulations from the three ‘sanction islands’, we will struggle to comply with everyone at the same time,” Lang said, adding that any ships rejected by the ports posed serious consequences.

IUMI and the separate Insurance Association let the international group of G7 governments and the European Union know that their guidance should include guarantees that proof of a Russian shipment sale in line with the cap is all the owner has to verify before agreeing to load and carry the goods.

Editing by Alexander Smith

Our criteria: Thomson Reuters Trust Principles.