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

• 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.

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 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.

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.

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.

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