The disconnect between the UK’s sanctions policy and its legislation leaves the shipping industry’s compliance in a grey area.
The industry is calling for the abolition of the “confusing” oil price cap mechanism in favor of a full ban on Russian oil and its products.
The UK Chancellor stated that “Russian oil is off the market,” but the legal position remains unclear.
Increasing sanctions pressure from the UK government is leading senior figures in shipping insurance and law to question whether so-called “legal” Russian trade under the oil price cap rules is still viable.
In September, the UK and EU lowered the price cap for Russian crude oil to $47.60 per barrel, theoretically allowing transactions below that price.
However, since then, the UK government has pursued an increasingly aggressive sanctions policy, prompting UK Chancellor Rachel Reeves to publicly state on October 15: “Russian oil is off the market.”
The latest round of UK sanctions employs an increasingly broad interpretation in defining which transactions “benefit Russia” or “contribute to the destabilization of the situation in Ukraine,” and uses this as a basis for sanctioning tankers.
This shift towards a more objective-based standard is causing growing concern among senior insurance and legal experts that even vessels involved in Russian-related trade deemed legal under the oil price cap rules now risk being placed on sanctions lists.
The UK government issued updated sanctions guidance for the freight and shipping industry this Monday, emphasizing the need for “rigorous” due diligence to ensure sanctions are not violated.
However, multiple insurance and legal experts interviewed by Lloyd’s List pointed out a clear disconnect between current policy intent and legislative guidance—the former is “increasingly seeking shipping targets to further tighten sanctions on Moscow,” while the uncertainty of the latter is “creating significant uncertainty for the shipping industry.”
“Everything seems to have shifted to a position of ‘excluding Russia,’ but the relevant legislation and guidance do not reflect this,” said a prominent UK sanctions lawyer.
Another senior insurance figure added: “There has been a significant shift in the attitude of the EU and G7 towards dealing with Russian oil and gas.”
This insurance industry source continued: “The UK now bases designations on the fact that the purpose of a specific transaction is ‘to destabilize Ukraine, or weaken or threaten its sovereignty and independence,’ which is an extremely broad definition.”
This approach means that even vessels not violating sanctions could be listed; by extension, any vessel involved in legal trade related to Russia now risks being sanctioned.
“One thing that worries me is the apparent significant political pressure on various UK government departments to increase pressure on Russia through sanctions, and what’s happening is that some vessels, which haven’t actually broken the law, are being listed,” said an insurer.
Although the UK government typically consults with industry figures before updating policy guidance, some of those consulted are increasingly concerned that these communications are merely a “box-ticking” exercise.
The vague definition of what constitutes a potential target and what does not is causing growing anxiety for both lawyers and insurance companies.
“Overall, this situation of uncertainty is not good for business, nor for compliance management,” the sanctions lawyer said.
While industry criticism of the oil price cap mechanism is not new, escalating sanctions actions by the UK, EU, and recently the US, have revived calls to scrap the policy and move towards a full embargo.
Compliance teams within the industry generally believe that a complete ban on Russian oil and its products, similar to the US primary sanctions model applied to Iran, would be easier to comply with than the current intricate, interwoven web of multi-layered restrictions.
“To be honest, we really don’t know what to do now,” said a compliance expert.
“Is trade compliant with the oil price cap even possible anymore? I genuinely don’t know the answer, because (the UK, EU, and US) have almost all major Russian oil producers under sanctions, so how can you move oil out of Russia without dealing with these companies and not become a target?”
“We are increasingly in an awkward position, trying to guess whether the government wants us involved in this trade or wants us out,” said another P&I executive working on sanctions compliance.
“At the beginning, the government’s position was quite clear—they wanted us to support the oil price cap mechanism to keep oil flowing. But honestly, now I don’t know what they want anymore.
