The European Union’s (EU) imposition of a ban on the import of Russian oil transported by sea is the bloc’s unprecedented tough sanctions against Moscow in response to the special military campaign in Ukraine.
But a smaller portion of this latest sanctions package has an even stronger impact.
`Targeting insurance is the most effective way to stem the flow of Russian crude, rather than simply redirecting it elsewhere,` said Matt Smith, lead oil analyst at the market research firm.
An oil tanker flying the Russian flag appeared near the Tripoli naval base in September 2015.
The EU has announced that after a six-month transition period, the bloc’s companies will not be allowed to `provide insurance services and financial support for the transportation` of Russian oil to third parties.
`This will make it very difficult for Russia if it wants to continue exporting crude oil and other petroleum products to the rest of the world, since EU companies are important providers of insurance services.`
The UK is also expected to join the EU in this effort, which will enhance the impact of sanctions, given the UK’s central position in the marine insurance market for centuries.
To date, Russia has been able to offset the decline in exports to the European market by selling oil to customers elsewhere at steep discounts.
`The restrictions on insurance services for Russian ships are the main reason why we believe that Russia is unlikely to redirect all of its oil from Europe to other places, especially China and India,`
Before the EU imposed the Russian oil ban, many European customers stopped cooperating with Russian partners to avoid logistical difficulties and image damage.
Kpler data shows that oil exports from Russia to Northwest Europe have decreased from 1.08 million barrels/day in January to less than 325,000 barrels/day in May. Sanction pressure from the West forced Russia
But Russia’s increased oil exports to Asia have helped offset most of those losses.
`Three months after the conflict broke out, Russian crude oil exports continue to skyrocket,` Smith said.
The ban on providing insurance services for ships transporting Russian crude oil was introduced by the EU to close this `loophole`.
Pipelines transport Russian gas to Europe.
`Uninsured ships will not be allowed to enter any major ports or pass through key maritime routes such as the Bosphorus Strait or Suez Canal,` said Sergei Vakulenko, an energy analyst from Germany.
Financial institutions around the world will not dare to risk providing insurance services to Russian oil tankers after the EU ban, fearing greater consequences from regulators, according to Richard Bronze.
Responding to the EU ban, Russia announced that it would respond by providing state guarantees for oil tankers.
`The problem is solvable,` Dmitry Medvedev, Vice Chairman of Russia’s Security Council, said on Telegram.
That means Russian oil exports may not be completely blocked.
But not everyone believes this is a solution to help Russia break the EU’s stranglehold.
Experts also warn that the EU’s sanctions on Russian oil could limit financial resources for Moscow, but will also cause global energy prices to rise even more, in the context of Europe and the US trying to
`Russia will lose a lot of revenue, but Europe and the US are also affected by rising world oil prices,` Olivier Blanchard, chief economist who worked at the International Monetary Fund (IMF), wrote last week.
