European governments have scaled back efforts to curb trade in Russian oil, delaying a plan to shut Moscow out of the vital Lloyd’s of London marine insurance market and allowing some international shipments amid fears of rising crude prices and a tighter overall energy supply.
The EU announced two months ago a global ban on providing marine insurance to ships carrying Russian oil, pending coordinated action with the British government. However, the UK has not yet introduced similar restrictions. UK participation is critical to the effectiveness of this ban because London is at the heart of the marine insurance industry.
Meanwhile, Brussels in late July modified some limitations on dealings with Russian state-owned companies, citing concerns about global energy security.
A joint UK-EU ban on marine insurance would be the most comprehensive restriction yet on Russian oil, ending access to much of Moscow’s global fleet of tankers for exports.
But US officials have expressed concern that an immediate global ban on marine insurance would drive up prices by taking millions of barrels of Russian crude and oil products off the market.
European and British officials told the Financial Times in May that Britain had agreed with the EU to coordinate a ban on securing Russian oil cargoes.
However, the latest British sanctions against Russia, approved by parliament in July, only prohibit insurance from being provided to ships carrying Russian oil to the UK, and only after 31 December. The legislation was introduced after the government pledged to ban the import of Russian oil from the end of the year but does not ban servicing shipments from Russia to other countries, UK officials said.
“There is no current UK ban affecting global shipments of Russian oil,” said Patrick Davison, director of underwriting at Lloyd’s Market Association, an industry group for Lloyd’s insurers. “Given the global nature of the [re] insurance industry, the existence of EU restrictions may affect appetite for Russian oil shipments to London.”
He said Lloyd’s was in close contact [the UK government] “and will work with them on any future sanctions they intend 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 together with our allies at pace to ensure they can be implemented with maximum effect on the Russian economy,” he said.
The EU insurance ban was introduced on June 4 and remains in place. It prevents companies in the bloc from underwriting new insurance for any ship carrying Russian oil anywhere. Existing contracts will remain valid until December 5, when all such business will be prohibited.
However, the EU has modified some of its own sanctions to allow European companies to deal with some Russian state 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 such transactions are strictly necessary,” for the purchase or transport of crude oil or petroleum products to third countries, a European Commission spokesman said in FT.
The EU said in a statement that the measures were taken to “avoid any possible 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 cargo.
Officials in Washington said the US and UK still plan to ban maritime services, including insurance, when the EU ban takes effect in December. But first they want an oil price cap. US President Joe Biden is set to lower gas prices ahead of November’s midterm elections.
Sanctions lawyers said the EU appeared to be scaling back its efforts to stem the global flow of Russian oil and there was fresh uncertainty among traders over Britain’s commitment to a global ban on insurance.
Sarah Hunt, a partner at HFW, a law firm, said trading houses were asking whether it was now legal to buy Rosneft oil to ship to countries outside the EU.
“The new EU sanctions effectively enable the lifting of Russian crude by European companies. We were surprised by this,” he said.
Leigh Hansson, a partner at Reed Smith, another law firm, said the EU sanctions amendment was a “big step back”, adding that lawyers also expected “more robust” measures from the UK.
Additional reporting by Alice Hancock and David Sheppard
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