Boom time for UK insurers of Russian oil shipments despite sanctions

A small group of UK-based insurance firms has underwritten more than $100 billion in Russian oil exports, triggering calls from a former British cabinet minister for an overhaul of the entire system of western sanctions.

Under the terms of the sanctions, vessels carrying Russian oil products can be insured by firms in the G7 and EU only if the crude was sold for less than the price cap of $60 a barrel.

British Conservative MP Alun Cairns, who sits on the Nato Parliamentary Assembly, feels the whole system of the price cap and sanctions pertaining to Russian oil needs revisiting. While British insurers may not technically be at fault, the shipments are being facilitated through the City of London.

“Our policy object was to damage the Russian economy through damaging their oil exports,” the former secretary of state for Wales told The National. “It’s not having the desired effect, so let’s revisit it.

“When the sanctions were introduced there was an understanding that they would facilitate a level of embargo against Russian oil and gas. That was the understanding in the way the policy was sold by the European Union, the UK, the US and others.

“If that isn’t the case, then clearly we need to revisit the policy. But my understanding is that there was a wish to undermine the trading of Russian oil and gas and insurance is a key tool in that.”

Nearly 18 months since the G7 imposed sanctions on Moscow after Russia’s invasion of Ukraine, Russian oil cargo and the ships that carry it continue to be insured by companies in the UK, according to a report by the independent Finland-based Centre for Research on Energy and Clean Air (Crea).

Number-crunching by Crea – which monitors Russian fossil-fuel exports and analyses the impact of sanctions – has found that between March 2022, just after the invasion, and November last year €120.6 billion ($129.9 billion) of Russian oil shipments was insured by UK companies.

Since the price cap of $60 a barrel for Russian oil exports was introduced by the G7 in December 2022, €46.4 billion of Russian oil has been transported on tankers using UK protection and indemnity (P&I) insurance.

Due diligence

But it is important to note that UK insurers are not breaking any laws or breaching the conditions of any sanctions, providing the Russian oil was not sold above the $60 price cap.

More than 90 per cent of the world’s shipping is insured by P&I clubs, which are independent, non-profit mutual insurance associations, providing cover for shipowners against third-party liabilities arising out of the use and operation of vessels.

The West of England P&I Club covered the highest value of Russian oil products at €20.1 billion, followed by NorthStandard at €17 billion, according to figures collated by Crea. North and Standard merged to become NorthStandard in February last year.

“We do, though, support our shipowner members who wish to engage in the lawful carriage of Russian oil under the EU/G7 Russian Oil Price Cap Scheme,” Mike Salthouse at NorthStandard told The National.

“It is incredibly important vessels that lawfully carry oil have the third-party liability insurance provided by the P&I clubs to compensate those that suffer loss as a result of a maritime accident – loss of life, injury, pollution, damage to property and wreck removal.

“All cargoes on vessels insured with an IG club will be in possession of valid attestations from the contractual parties in the chain and have been subject to due diligence and KYC [know your customer].”

However, a senior EU official told the Financial Times in November that the previous month almost none of the Russian oil exports by sea were executed at less than $60 a barrel.

According to Crea, this provides strong evidence that many sales of Russian oil were carried out above the price cap on ships insured in the UK.

“The attestation documents would therefore be fraudulently produced and those producing the documents must have lied about the oil being paid below the cap so that they could attain UK maritime insurance,” Isaac Levi, Europe-Russia policy & energy analysis team lead at Crea told The National.

But the insurers dispute any suggestions of wrongdoing on their part, simply because under the terms of the P&I contracts, if the paperwork does not reflect the true picture of a cargo, the insurance is immediately rendered invalid.

“If it transpires that an attestation is inaccurate or there is any other sanctionable activity then insurance cover for the voyage concerned ceases automatically and in its entirety,” the insurer West P&I said.

“It is therefore…