Self-sanctioning by shippers, banks and insurers when it comes to Russian oil cargoes, as well as a recent announced toughening of the rules by the EU, has led the Biden administration in the US quietly to ask the EU and the UK to soften the recently-announced ban on marine insurance for Russian oil cargoes, according to the Financial Times.
The ban was agreed at the end of May, extending the sanctions from Russian-flagged and Russian-owned vessels to all vessels carrying Russian cargoes (with some exceptions). When it takes effect it will cut Russian energy exporters off from the Lloyd’s market and from the International Group of P&I Clubs.
It will also cut off Russian cargoes from much of the reinsurance market.
Anticipation of the ban was already having an impact, said Reuters. Insurers in the UK and EU were already hesitant to cover vessels carrying Russian oil.
It was thought likely that the effects of these early self-sanctioning decisions would begin to be seen as early as July, shipping executives told Reuters.
The Biden administration is concerned that a full insurance ban would make trade in Russian oil nearly impossible, which in turn would remove up to 8% of the world’s crude supply from the market. Indeed, that was the named objective of the ban, but the US seems to be looking for a solution that will cut of Russia’s income without cutting global supply – a difficult circle to square.
The supply shock that would result from the “success” of the oil embargo on Russia had been causing a further jump in energy prices for everyone, and the US midterm elections are approaching.
One leading economist estimated that cutting off Russia from the global oil market could lead to a crude price increase of between 20% and 30% – and that this would have a significant impact on the global economy, as well as on Russia.
The FT said that the Biden administration was asking its European partners to soften the marine insurance ban so that it allowed some Russian oil exports, but only for cargoes sold below a certain price threshold. The FT also noted that this idea was not gaining much traction in the EU, who had already legislated for a full insurance ban, and had no plans to revisit the issue.