Russian oil embargo
Under the new sanctions, there is to be a partial ban on the import of seaborne crude oil and petroleum products originating in Russia into the EU by the end of 2022.
There are expected to be certain exemptions to this ban, including Russian oil transported through the Druzhba pipeline to Hungary, the Czech Republic and Slovakia (as land-locked EU states). Such exemptions are intended to be temporary, although there is currently no expiry date in the current legislation.
It is expected that the ban will immediately impact 75 per cent of Russian oil imports and effectively cut around 90 per cent of oil imports from Russia to the EU by the end of the year.
Other measures
Further measures implemented under the latest package of sanctions include:
- The exclusion of Sberbank, Credit Bank of Moscow and the Russian Agricultural Bank from the SWIFT messaging system
- A suspension of broadcasting in the EU for three Russian state broadcasters for spreading misinformation
- The imposition of asset freezes on several additional individuals for committing war crimes in Ukraine
- A ban on providing Russian companies with a whole range of business service
Maritime insurance ban
The EU also intends to impose a ban on EU insurers providing coverage for vessels carrying oil shipments from Russia. By all accounts (and according to reports), the insurance ban has been coordinated by the UK government and will result in Russia also being shut out of the crucial Lloyd’s of London insurance market, which will significantly impact Russia’s ability to export its oil.
The latest insurance ban follows similar UK insurance bans targeting the Russian aviation and space sectors that were implemented earlier this year.
We are waiting for formal clarification regarding how the EU and UK will adopt these announcements, and we plan to issue a further update once clarification or legislation is published.
Impact
Once in place, the new restrictions are likely to have a significant impact on Russia’s ability to export its oil. The concern with introducing an EU oil embargo in isolation was that Russia would simply look to divert its supplies elsewhere, principally to China and India, who have both increased oil purchases from Russia within the last few months and are importing record levels of crude.
However, the coordinated implementation of the EU and UK marine insurance ban alongside the EU oil embargo means that Russia’s ability to export oil anywhere in the world will be heavily disrupted. Shipowners will now struggle to find alternative cover as P&I Clubs cover around 90 per cent of the world’s fleet. Sovereign guarantees could be an option, as could using smaller insurance markets with less established brokers, but there is still the question of whether ports would accept vessels with cover from anywhere outside of the International Group of P&I Clubs.
Europe is Russia’s largest oil customer. It bought about half of the 4.7 million barrels per day of Russian crude exported last year. Russia lacks significant oil storage capacity, so it may be forced to stop pumping if demand drops, as seems likely.
Oil exports account for about 40 per cent of Russia's federal state budget, so the coordinated oil import and marine insurance ban represents serious expansion of sanctions that has global reach.
As soon as we are able, we will issue a further update, drawing together the formal text of these new restrictions and how they will operate.
