Russian seaborne oil exports could find ways round EU insurance ban: sources

Some shipping sources are not convinced an EU insurance ban will prevent shipowners from seeking Russian barrels as alternative insurance providers from further afield remain an option, they said June 15.

Tanker owners are also capitalizing on sky-high freight rates for journeys out of Russia as this oil is still finding homes despite a barrage of Western sanctions.

The influential London marine insurance market is also likely to join the EU in an insurance boycott, which would make it even tougher for Russian tankers and tankers carrying Russian oil to travel to various destinations.

However, Moscow's oil exports continue apace and providers in other regions will likely fill the breach, sources added.

"There is talk that there could be some Asian entities, perhaps even Chinese insurance providers, to step in, in the absence of EU providers," a maritime analyst said.

Sanctions imposed by the EU in their sixth sanctions package in early-June included a prohibition on EU operators insuring and financing seaborne transport of Russian oil to third countries after a wind down period of six months.

This affects a considerable volume of seaborne oil. Russia is a significant supplier of oil to the world, exporting more than 7 million b/d of crude and petroleum products, or some 13% of the total oil trade.

Russian crude exports have remained elevated in May and June, but loadings of refined products have taken a hit in recent weeks, according to trading and shipping sources.

Super-high freight

Shipowners still carrying Russian-origin oil are benefiting from lucrative rates and are using this business to hedge against "difficult times ahead," with concerns such as decarbonization and emissions likely to engulf the industry in the medium-term.

"We will continue to do it until we are no longer capable of it. Moving forward the [emissions and decarbonization] regulations will hurt us, so right now the markets are treating us well," a manager at a clean tanker shipowner said. With an ongoing squeeze on middle distillate supply, of which Russia is a significant provider to Europe, freight rates out of the Black Sea have surged.

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

The Dirty Black Sea to Mediterranean route for a 30,000-mt cargo was assessed at $38.29/mt June 14. This is down from record highs of $46.50/mt in April but still 133% above its level on Feb. 23.

With the Ukraine-Russia conflict in the Black Sea ongoing, threats to the safety of vessels also remain a problem as insurance premiums have risen since the invasion.

Shipments of Russian-origin oil products have been concentrated amongst a small pool of shipowners in light of the initiation of the conflict, and freight indications have risen as a result.

With outgoing volumes dwindling, it remains to be seen how much appetite charterers will retain for short-haul shipments moving forward, with loading programmes from key Black Sea refining hubs such as Novorossiysk and Tuapse showing declining volumes month on month since the start of the conflict.

UK insurance ban likely

The UK has not yet banned provision of insurance or financing to Russian seaborne oil. However, some market participants expect this to come in due course and have said the expectation of a future ban already discourages provision of insurance.

Peter McNamee, a partner at law firm Ince Gordon Dadds, said that the reputational risk to insurance providers in the UK may be sufficient to close off this source to Russian seaborne oil. "The London market is very likely to refuse to put itself in a position where it is in breach of EU sanctions," he told S&P Global on the sidelines of the Posidonia 2022, a shipping industry event in Athens.

Russian counterparties and shippers carrying Russian oil will therefore have to look outside London as much as the EU to get cover. This cover could come, for instance, from the Russian state, McNamee said.

The UK ban would be a big blow to Russian oil trade as London is a pivotal player in the marine insurance sector. It is home to many companies linked to the international group of Protection and Indemnity (P&I) Clubs