Woe is tanker insurers

The tanker jam that formed in the Bosphorus last week following the launch of the G7 and EU oil price cap regime for Russian crude brought under the spotlight an industry that traditionally dislikes the spotlight: insurance.

Because denial of insurance is one of the fundamental conditions of the price cap regime, insurers will be instrumental in enforcing the sanctions, theoretically. Practically, they are being put in quite an unpleasant position, in which they constantly risk breaching sanctions, on the one hand, and on the other, they stand to lose business.

Let’s take a quick look at the Turkey situation. A few days before the G7 price cap regime went into effect, the Turkish government installed new rules for tankers passing through Turkish waters. Per these rules, tanker operators needed to present proof of P&I — property and indemnity — insurance coverage.

Insurers belonging to the International Group of P&I Clubs that account for as much as 90% of this sort of coverage in the shipping industry refused to provide such letters with the argument that they have no way of knowing if a tanker insured by them won’t breach G7 and EU sanctions at some point while the insurance policy is active, making them a target for sanction violation action.

In a statement, the London P&I Club put it as follows: “It [The Turkish government] requires a P&I Club to confirm that cover will not be prejudiced under any circumstances, including where there is a sanctions breach on the part of the assured, whether knowingly and intentionally or unknowingly and unintentionally.  Issuing a confirmatory letter under these circumstances would expose the Club to a breach of sanctions under EU, UK and US law and as such the Clubs cannot comply with the Turkish Authority’s request.”

In other words, Turkey basically required insurers to subject themselves to the risk of breaching Western sanctions against Russia with no means of preventing that risk because there is simply no way for insurers to keep track of every oil cargo they insure at every moment of its journey. It sounds even more complicated than reporting emission reduction progress.