According to officials and a draft document obtained by Bloomberg, the EU is considering prohibiting European vessels and companies from providing services — including insurance — related to the global transportation of Russian oil and products as part of its new sanctions package.
While member states are still negotiating the terms, it's a potentially powerful tool because 95 percent of the world's tanker liability cover is arranged through the International Group of P&I Clubs, a London-based insurance organization that must follow European law.
Without such coverage, Russia and its customers would be forced to find alternative solutions for risks such as oil spills and maritime mishaps, which can quickly escalate into multibillion-dollar claims.
The International Group's coverage is a standard component of contracts for the transportation of most oil cargoes. The IG, as it is known, provides reinsurance if claims exceed the amount covered by the group's 13 individual member clubs.
And there is precedent: insurance was a key tool used by the United States and Europe to successfully limit Iran's oil exports. Individual countries responded to these steps by arranging coverage directly, despite the fact that IG insurance is widely preferred by most large corporations.
If fully implemented, the move significantly raises the stakes with Moscow. The insurance measures are in addition to the EU's plan to ban Russian crude and refined product imports by the end of the year.
The restrictions on services would include providing "directly or indirectly, technical assistance, brokering services, financing or financial assistance, or any other services related to the transport, including ship-to-ship transfers, of crude oil and petroleum products originating in Russia or exported from Russia" to third countries.
The EU wants this part of the package to go into effect by early June, but member countries are still debating the details, and all countries must sign off.
Experts from various member states will review the texts today and provide feedback before ambassadors reconvene Thursday for the next round of talks, according to a diplomat. Before negotiations began in earnest, the diplomat said it was difficult to predict what the final agreement would look like, but that the restrictions on shipping to third countries would need to work in tandem with an EU phaseout of Russian oil.
The proposed rules also prohibit European citizens and European-incorporated companies from transporting Russian oil anywhere in the world, not just to Europe. This means that vessels owned, chartered, or controlled by European entities and individuals, even if they do not fly the flag of one of the EU's member states, are not permitted to transport Russian crude oil and petroleum products.
According to two diplomats familiar with the situation, Greece, Cyprus, and Malta raised concerns about the ban and whether it would help Europe achieve its goals without harming European businesses. Greece and Cyprus have significant shipping industries, whereas Malta is a so-called flag state, where companies can register their vessels for ownership purposes.