December 8, 2022

Brussels has shelved its plans to ban the EU shipping industry from carrying Russian crude after failing to secure agreement from key partners to mirror the sanction.

However, the European Commission still aims to ban European companies from insuring tankers carrying Russia oil as a way of constraining Moscow’s ability to make crude shipments.

The EU is trying to push through its sixth package of penalties aimed at Russia, which was intended to include the shipping ban and an embargo on Russian oil imports. The commission has been seeking to convince Hungary and a number of other central and eastern European countries to sign up to the phased-in oil ban, with president Ursula von der Leyen travelling to Budapest for discussions on Monday.

The idea of the shipping ban has now been dropped, according to several people familiar with the talks, following hard lobbying from Malta and Greece, which is home to more than half of the EU flag tonnage.

During the talks member states raised the issue that an effective ban should involve other countries such as the US and UK, particularly for the US to exert influence over nations where many vessels are flagged, such as Liberia, the Marshall Islands and Panama. The lack of agreement among the G7 nations was central to the proposal being dropped.

The EU’s executive arm is also proposing to ban European companies from providing services, including insurance, that are needed to transport Russian oil anywhere in the world. That provision is expected to stay despite a reluctance from some member states, the people said.

David Semark, a maritime lawyer at Quadrant Chambers, said a ban on EU insurance for tankers carrying Russian crude and refined products would “amount to a backdoor ban on Russian oil worldwide”.

Targeting maritime insurance is a potent tool because most Russian oil exports are transported via tanker and the largest specialist insurers for the sector operate primarily in western countries. All of the 13 Protection & Indemnity (P&I) Clubs under the International Group, mutual insurers for shipping that cover third-party liabilities including bunker fuel spills, wreck removals and personal injury, are managed from the UK, EU, Norway, the US and Japan and cover 90 per cent of oceangoing ships.

Most ports require vessels to have P&I certification and buyers of Russian oil would be extremely reluctant to be on the hook for claims that could run into hundreds of millions of dollars without P&I cover.

Diplomats hope the UK can be convinced to sign up to the financial services measure, which would be critical given the importance of the Lloyd’s of London insurance market.

If a co-ordinated EU, US and UK ban on maritime financial services were to be introduced, some shipping experts predict trade in Russian oil would increasingly rely on “ghost fleet” tactics used in the trade of Iranian and Venezuelan oil such as putting vessels under fake registries, spoofing location signals, blending oil and transferring cargoes multiple times.

Discussions are ongoing and measures could change by the time they are approved by all 27 countries.

Von der Leyen was travelling to Budapest on Monday afternoon to meet Viktor Orbán, the Hungarian prime minister, in the hope of addressing his concerns about the impact of the mooted sanctions on his country’s energy security.

Hungary is hoping for a longer phase-in period than the bulk of member states preparing to sign up to the ban on Russian oil, as well as seeking EU financial support to help engineer its transition away from the country’s fossil fuels.

Other member states including Slovakia and Czech Republic are also expected to receive special terms under the terms of the energy sanctions given their reliance on Russian crude.