EU price cap on Russian oil creating chaos in maritime transport

By Al Mayadeen English
Source: Agencies
11 Dec 2022 08:51

This comes after Turkey's request for proof of insurance from Russian oil tankers impeded movement in the Bosphorus and Dardanelles straits.

The Ottoman Sincerity oil tanker in Istanbul (Reuters)

The recent price cap on Russian crude oil enforced by the EU on Monday has been interrupting tanker movement and maritime transport. This comes after Turkey's request for proof of insurance from Russian oil tankers impeded movement in the Bosphorus and Dardanelles straits and further into international markets.

The Financial Times recently reported that Russia has assembled more than 100 vessels using non-Western insurers and intends to sell oil at higher prices to countries that have not partaken in the new sanctions package.

'An already complex situation'

According to The London P&I Club, a provider of maritime protection and indemnity insurance, "The Turkish government's requirements go well beyond the general information that is contained in a confirmation of entry letter. It requires... (confirmation) that cover will not be prejudiced under any circumstances, including where there is a sanctions breach on the part of the assured."

Marcus Baker, global head of Marine & Cargo at insurance broker Marsh, continued that the implementation of the price cap measure "adds another layer of complexity to an already pretty complex situation," adding, "The slowdown that might happen because of this added administrative burden may have the desired effect that the G7 wanted anyway," as reported by AFP.

The European Union reached an agreement on setting a price cap on Russian oil at $60 a barrel, keeping a review mechanism to keep the price cap at 5% under market value.

When the price cap was being further developed in October, the Russian Foreign Ministry called out the EU's decision on Russian oil exports to third countries, namely Cyprus, Malta, and Greece, and pledged to sell oil to countries that honor free market principles.

Russian Foreign Ministry Spokesperson Maria Zakharova also slammed the EU's attempt, saying, "The Group of 7’s plan to set a voluntary price ceiling on oil again proves that the principles of a market economy are alien to Brussels and Washington."

The dark fleet

Edoardo Campanella, an analyst at UniCredit Bank, stated that "Moscow is already working on circumventing the ban on insurance by providing its own insurance to potential clients through its state-controlled Russian National Reinsurance Company."

An anonymous executive at an oil shipping company noted that "it will take a week or two, I think at a minimum, to see how the market will function in light of the price cap," adding, "There's a general view that there is enough shipping capacity in what can be called a 'Dark Fleet' or a sanctions-indifferent fleet so that Russia can sell its oil without regard to the price cap."

"This means to China, to India, potentially some to Brazil or other parts of the world. So it doesn't have to comply with the price cap. So there's enough capacity," he said to AFP.

On a separate but more positive note, Russia is on the course of becoming India’s top oil supplier this month as Moscow made quite an advance in the Asian giant’s energy sector, in a move that will likely hinder the impact of a price cap imposed by G7 countries and their Western allies, an article by The Independent revealed.

In light of the price cap, Russian President Vladimir Putin commented that "the proposed cap corresponds to the prices at which we sell today. In this sense, this decision does not affect us in any way. To be honest, it is not important for us," during a press conference following his visit to Kyrgyzstan.

He further underlined that Russia will not incur any losses in the wake of the price cap being introduced under no circumstances, further highlighting that Moscow would not be selling oil to unfriendly countries imposing price caps on it.

Starting from February 5, 2023, the European Union will be introducing a price cap for Russian refined products as well.