There are growing concerns in the tanker sector that governments
in the west have not understood fully the potential implications of the latest
set of western sanctions against Russia, particularly the ban on western
companies buying oil for more than an artificial price cap.
A question being asked by traders, tanker companies and
governments is whether the petroleum industry’s supply chain will be able to
cope with these new sanctions, which are the toughest on Russian exports in
history.
Bloomberg observed that most tankers were covered against
risks including oil spills by the 13 International Group Clubs, most of which were
in Europe, with several operating out of EU countries. The EU’s sanctions mean that
the bloc’s firms would have to stop providing cover, while the IG itself could not
count on reinsurance from EU-based companies.
The UK was yet to fully follow the EU, meaning that some
cover could still be available. The IG itself is in London.
The price cap would make European services and insurance
available to companies who abide by the price ceiling for Russian oil.
Notwithstanding whether Russia would cooperate with the cap program, the EU’s
participation is far from straightforward.
In signing up, the bloc had two important stipulations.
First, that shipping companies — including the giant Greek
fleet — would be included. In other words, a trader could theoretically only
hire a Greek tanker if that trader paid a capped price for oil.
Second, the EU’s rules as currently written state that a
tanker anywhere in the world will not be allowed to access the bloc’s insurers
and reinsurers — for any future cargo, including non-Russian — if they purchase
if they transport a oil that wasn’t bought under the cap.
Europe is a centre for insurance and reinsurance. Without
it, owners risk being under-covered against risks, including oil spills. That
makes adhering to EU sanctions — and the cap — a polarizing and uncertain issue
for tanker owners. The EU’s implementation of a cap has yet to be formalized
and also depends on other G-7 nations taking similar actions.
The result has been a vast shadow fleet of tankers with
unknown owners being STEW amassed to transport Russian oil at a free-market
price.
Intense US-led diplomatic wrangling to soften the aggressive
EU sanctions has been going on for months, but with only a few weeks to go, no
solution appears to be in sight. The EU’s penchant for close-to-deadline
agreements does not work well when it comes to products with long lead times,
of which oil transport is a prime example.
Little clarity exists on whether the EU plans will help
the world’s third-biggest oil producer get much of its output to buyers at the
stipulated price.
The US has been telling the EU for some time that its
plans could trigger a major supply shock. It is negotiating for companies to be
allowed to access EU services — especially insurance.
What is looking increasingly likely is that a large part
of Russian oil flows will bypass the existing global tanker network, and the
insurance associated with it. Ports and safe passages dominated by shadowy entities
still willing to deal with Russia.
Christian Ingerslev, CEO of Maersk Tankers A/S, told
Bloomberg that “if you look at how many ships have been sold over the past six
months to undisclosed buyers, it’s very clear that a fleet is being built up in
order to transport this”.
Shipbroker Braemar estimated that to support four million
barrels a day of Russian exports to the far east, many of the
recently-transacted vessels will need to be added to the 240 ships — 102
Aframaxes, 58 Suezmaxes and 80 very-large crude carriers — that have carried
Iranian and Venezuelan crude in the past year – the basis of the large shadow
fleet that will support Moscow.
“There’s been a sharp rise in the tanker trading since
the war and in the run-up to the December 5th deadline by undisclosed entities
based in countries such as Dubai, Hong Kong, Singapore and Cyprus,” said Anoop
Singh, head of tanker research at Braemar. He noted that many were older ships
and would find their way to the shadow fleet, with Russian shipowner Sovcomflot
PJSC supplying some tankers as well.
There was almost certainly also going to be a significant
increase in the number of ship-to-ship transfers enabling the combination of a
few small cargoes that have left Russian ports onto larger tankers for
long-haul voyages.
China and India plus some other Asian destinations are certain
to become the top destinations for Russian oil after December 5th –
but, unless the EU backs down, the global insurance system, including
protection against environmental disaster, could break down.
