According to British and European officials, the United Kingdom and the EU have agreed on a coordinated ban on insuring ships carrying Russian oil, shutting Moscow off from London’s vital Lloyd’s insurance market and drastically limiting its ability to export crude. .
Lloyd’s has been at the heart of the maritime insurance industry for centuries, and blocking its members from securing Russian oil cargoes will increase pressure on world commodity markets, which have been turbulent since the invasion of Ukraine by part of Moscow.
The ban on insurance is part of a new package of EU sanctions targeting Russian oil exports. Brussels agreed to a embargo on most oil shipments to Russia on Monday afternoon, but UK involvement unblocked the insurance ban. This could have far-reaching consequences for Moscow’s exports and allow it to seek insurance in smaller, less developed markets.
Insurance has been a big step in the development of the EU’s oil ban, with insurers warning of the wider economic consequences of cracking down on a sector that is crucial to international trade.
There was also concern in Brussels that the EU acting alone in insurance sanctions would mean more business flowing into the London international market. “There is a level playing field if London continues to offer insurance and then passes much of it through London’s Lloyd’s,” a senior commission official said.
European Commission President Ursula von der Leyen announced measures on remittances on Tuesday, but officials said it was London’s decision to abandon its opposition that paved the way for a new package of sanctions. .
Greece and Cyprus, which have major maritime sectors, agreed only after the UK pledged to follow suit, officials said.
The UK government declined to comment, but people informed of the plans said an announcement was imminent that the UK would ban insurers from covering ships carrying Russian oil. “This is something that is happening in a coordinated way,” one said.
Helima Croft, head of commodity strategy at RBC Capital Markets, said: “It’s hard to stress how important this move is for the UK and the EU. Taking out insurance will have a big impact on Russia’s capacity. to export its oil. It’s one of the harshest sanctions Europe has on its armory. “
The London insurance market is preparing to extend sanctions to the key maritime sector following measures to cut aviation and space coverage to Russian companies earlier this year.
Senior Lloyd’s market figures have stressed to Brussels and Westminster officials the challenge of establishing the origin of oil cargoes on ships, according to people familiar with the matter.
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They have warned that insurers could withdraw from covering any ship leaving a particular port, which would have wider economic consequences. Russian ports are also a pipeline for Kazakhstan’s oil, which is not under sanctions.
A senior commission official added that G7 countries were working to ban insurance. The ban will not take effect for six months, the official said. “[Russia] then he really has a big problem with sending things, “the official said.
Years of compliance with sanctions on Iranian oil cargoes have provided a template for compliance, senior Lloyd’s market officials said. “The only complication is making sure it’s Russian oil to begin with,” one said. “It’s not the easiest job in the world, but it’s not impossible either.”
Brent crude oil prices have risen by almost 60% this year after the Russian invasion of Ukraine shook world commodity markets. The price of refined products such as gasoline, diesel and aircraft fuel has also risen sharply, as the supply crisis in many major markets is exacerbated by rising demand.
Russia, the world’s third-largest oil producer, has so far found buyers for its oil, including China, India and Turkey. However, Russian exports of refined products have declined.
Rising energy prices have been a key factor in fueling the huge shock of inflation around the world this year.
Additional report by David Sheppard in London