EU insurance ban targets Russian oil exports

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London, UK June 29-An EU ban on insuring ships carrying Russian oil could potentially hurt Moscow more than its domestic crude embargo, analysts say.

The European Union recently unveiled the insurance ban in a sixth round of economic sanctions aimed at punishing Russia for its invasion of Ukraine.

In another blow, G7 leaders are seeking to cap Russian oil prices to further hurt Kremlin revenues.

The EU insurance and reinsurance ban, covering all Russian oil shipping, comes as Moscow seeks to increase sales to China and India to help offset the embargo.

– “Further than the embargo” –

Banning insurance “would have bigger consequences for the oil market than the EU oil embargo”, noted Commerzbank analyst Carsten Fritsch.

Companies will no longer be allowed to transport oil from Russia by sea or to insure such shipments.

Insurers in the EU have until the end of this year to implement the ban, while those in Britain are expected to follow suit.

“There’s going to be an impact and there’s going to be an impact on prices,” said Marcus Baker, international marine manager at US brokerage Marsh.

A similar ban was used in 2012 when the EU barred European insurers and reinsurers from covering ships carrying Iranian oil.

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The bloc had also imposed an embargo on the purchase of Iranian crude as part of sanctions against Tehran’s controversial nuclear program.

Commercial vessel operators need insurance for the vessel, its cargo and for protection and indemnity (P&I) covering events such as war and environmental damage.

Mathieu Berrurier, managing director of maritime insurance broker Eyssautier-Verlingue, told AFP that large sums of money were needed for potential payouts caused by such disasters.

This translates into insurers forming P&I clubs that “are able to offer guarantees equal to the risks involved” during events such as a “major oil spill or a ‘collision with an ocean liner,'” Berrurier said.

“Colossal sums are needed,” he said, adding that such disasters can potentially cost “billions of dollars.”

Former Russian President Dmitry Medvedev, who is the deputy head of the country’s Security Council, hinted that Moscow could circumvent the ban by providing state guarantees to cover oil exports.

This could allow Russia to self-insure and circumvent EU sanctions, he insisted.

“That’s true to some extent,” said analyst Livia Gallarati of consultancy Energy Aspects.

But with up to 95% of the P&I insurance market handled by EU and UK-based insurers, experts say, it will be difficult for Russia to completely circumvent the ban.

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“The market is so tightly intertwined in Europe (that it) is going to be almost impossible” to escape the impact of the ban, an oil transport official told AFP on condition of anonymity.

“There is not a very mature and deep alternative insurance market there,” noted the executive.

– India “helps Russia” –

It emerged late last week that India had stepped in to offer certification services to some tankers carrying Russian crude.

This shone a spotlight on this week’s G7 summit, which focused on more coordinated financial action against Russia.

“India is helping Russia continue to sell its oil despite Western sanctions,” said Commerzbank analyst Fritsch.

He added that India has provided safety certification for more than 80 vessels belonging to a Dubai-based subsidiary of Russian shipping company Sovcomflot.

G7 leaders, meeting in Germany on Monday and Tuesday, condemned Russia’s invasion of Ukraine as “illegal and unjustifiable”.

“We reaffirm our condemnation of Russia’s illegal and unjustifiable war of aggression against Ukraine,” they said in their draft final statement.

The statement was released after the G7 held talks with Indian Prime Minister Narendra Modi, as well as the leaders of Argentina, Indonesia, Senegal, South Africa and Ukraine.

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