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Marine Insurance Ban On Russian Oil: What Does It Mean For The Industry?

Russian oil vessels insurance ban

In Summary:

 

  • The EU has imposed unprecedented sanctions against Russian oil in response to the invasion of Ukraine in 2022.
  • Starting in December 2022, the European Union banned the importing and providing insurance, trade finance, banking, brokering, navigation and other maritime services by EU companies for transporting Russian crude oil to any location.
  • According to a Financial Times analysis of shipping and insurance records, about a quarter of Russian seaborne crude shipments since December 5, when restrictions started, were insured by western companies.
  • This is a significant development for insurers and insurance buyers since it has become harder for shippers to get some types of insurance.
  • Russian oil exporters may suffer more from an EU ban on insurance than from its embargo. Buyers of Russian crude oil can access insurance and broking services only if they attest that they have paid less than $60 a barrel.
  • If you are looking for coverage involving shipments of Russian oil, you need to ensure that you are aware of your risks so that your business operations continue running smoothly.

 

Updates – January 2023:

 

  • The export ban and price cap haven’t delivered a knockout blow to the oil and gas industry, especially as natural gas traders in Europe look at the warmest winter in years.
  • Japanese insurers continue providing marine war insurance for liquefied natural gas (LNG) shippers in Russian waters. This ensured Japan would continue importing vital fuel from the Sakhalin-2 gas and oil project in Russia’s Far East after Jan. 1, the Nikkei daily said.


Let’s take a closer look at how this ban may affect insurance buyers around the globe. 

The Background of the 2022 Russian Oil Vessels Insurance Ban

The insurance ban affecting the Russian oil trade is part of an effort by the US, EU, and several other countries to prevent Russia’s illegal activities in Ukraine and Syria.

The sanctions have been in place since 2014 and have become increasingly strict over time, including travel bans, asset freezes, and, more recently, an insurance ban on tankers carrying Russian oil.

Major global marine industry insurers have announced that they will no longer provide coverage for shipments of Russian oil, effective in the first week of December 2022. This can have significant implications for both insurers and insurance buyers alike.

For insurance buyers, this means higher premiums or difficulty finding adequate coverage at an affordable rate. For insurers, it means reduced revenue if they are unable or unwilling to find alternative sources of business.

Due to these changes, the Turkish Bosphorus Strait is already jammed with oil tankers, causing shipping delays. At the time of writing, gCaptain reports that the waiting time to cross the Strait peaked in early December.

It happens that Turkey requires vessels to provide proof of insurance covering the duration of their transit through the Bosphorus or when calling at Turkish ports. Following the restrictions imposed by the ban, some vessels could not provide confirmation letters for their insurance and had to move from Turkish waters.

The Effects of the Vessels Ban on Marine Insurance

For insurance buyers who need coverage for tankers that transport Russian oil and related products, it’s essential to understand how this new ban may affect the marine insurance market.

Beware of legal breaches

First, you should be aware that any insurer providing coverage for these shipments after December 2022 will likely be subject to fines or other penalties for breaching international sanction laws.

You should also note that insurers may decide not to cover shipments of Russian oil or related products before December 2022, so it’s best to double-check with your insurer if their policy is unclear.

Last minute change of mind

In addition, you should be aware that even if insurers fully comply with international law, they might choose to only provide coverage for shipments of Russian oil or related products after December 2022.

If this happens, you’ll need to find an alternative provider who can offer you coverage for these shipments after the ban goes into full effect.

Despite the rigid limitations, there’s some flexibility for anyone involved in trading and transporting Russian oil. Under the G7 scheme’s
transition period
, which runs to the 19th of January of 2023, services, such as insurance, can still be provided for Russian seaborne crude bought before December 5th.

Price hikes are imminent

Finally, it’s essential to remember that some insurers may raise their premiums or adjust their terms & conditions after the ban goes into effect – so it’s worth looking around and comparing different policies before deciding who to buy coverage from.

All things considered, this new rule is set up to protect both insurers and insurance buyers from any potential risks associated with transporting sanctioned goods illegally – which means that everyone stands to benefit from its implementation come December 2022.

Navigate the Complex Changes with Ease!

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What Does the Ban Mean for Marine Insurers and Reinsurers?

The primary effect of this ban is that it prevents all major insurers and reinsurers from providing coverage for any operations conducted not only by sanctioned Russian oil companies but also involving oil traded at prices above the established price cap.

This means that any policy already in place for these companies will become void, and new policies cannot be issued until the ban is lifted. In addition, the ban prohibits any transactions between insurers and their affiliates if those transactions involve providing coverage to sanctioned entities or their operations.

This ban could be a massive blow to some insurers who have invested heavily in foreign markets. They may now have to consider divesting from these markets or restructuring their investments to comply with the new sanctions.

It’s also possible that some foreign-based insurers are more affected by this ban than others. However, this depends on whether or not they have significant investments in Russia-based assets or operations which are subject to law enforcement action and sanctions compliance procedures.

What Does the Russian Marine Insurance Ban Mean for Insurance Buyers?

The most significant impact of this ban will likely be felt by buyers of commercial insurance who rely on insurers from G7 countries, mainly the UK, for coverage of activities conducted in Russia or related to Russian oil companies.

While some buyers may find alternative sources of coverage outside of the primary insurance markets, they should also keep in mind that international coverage can often come at a higher cost than domestic policies due to different regulatory frameworks and other factors such as currency exchange rates and political risk premiums imposed by local governments. Besides, this coverage must comply with the new sanctions legislation.

How Technology Can Help

If you are an insurance buyer looking for coverage that includes shipments of Russian oil, you are probably doing a lot of guesswork to calculate risks and get the best deals in this renewal season.

Visualising data at the asset level can give you insights on how to make smarter buying decisions in critical times like this. Not to mention making the whole submission process a breeze. An insurance management platform can keep you on top of the significant factors affecting your policies and allow you to manage data efficiently.

To better understand how Insurwave works, request a demo today and see how we can help improve your insurance management processes!

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Conclusion

The insurance ban on Russian oil is an important development with far-reaching implications for insurers and buyers. If you are looking for coverage involving shipments of Russian oil, you need to ensure that you are aware of your risks and that your business operations continue to run smoothly.

Finally, it’s worth noting that some providers may still offer limited coverage, as opposed to none – so don’t assume you won’t get any protection until you’ve done your research and your broker has spoken with your insurer directly.

Managing your insurance policies in turbulent times can be time-consuming and stressful, but the right insurance technology can make it more straightforward and efficient.  Sign up for Insurwaves weekly newsletter with insights, research, guides, and interviews to help you easily sail through the stormy waters!

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