Insurers Signal Fallout From Sanctions On Russia

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Yves here. We warned from the outset that the idea of using a ban on Collective West (as in London) maritime insurance to Russian tankers as a way to stop shipments would not work. If nothing else, the Russian state itself could provide the insurance, as well as private insurers there and in other countries that would very much like to eat the UK’s lunch. As we can see, that’s what’s happened. And author Irina Slav, who normally adopts a neutral tone, registers annoyance at officials who expected otherwise.

By Irina Slave, a writer for with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice

  • It appears that the push to punish Russia for its invasion of Ukraine is backfiring and hurting insurers and shippers in the West disproportionately.
  • Russia’s growing shadow fleet of oil tankers is delivering crude despite insurance and price-cap sanctions.
  • Despite the sanctions, Russia has managed to increase crude exports in the first months of the year.

A year ago, the Financial Times reported how maritime insurers were concerned that sanctions targeting Russian oil exports would disrupt global supply chains, lead to higher prices, and make life for shippers and insurers more stressful.

This week, the same publication sounded the sanction alarm again. But it is no longer a general concern about supply chains, oil prices, and the price cap compliance woes of shippers and insurers. It is now a much more direct concern about how cap-compliant companies are suffering lost business as Russia’s shadow fleet rises.

If the past year has taught the sanction enforcers anything, it is that there is a way around everything. They should have actually seen it with Iran and Venezuela, but apparently they didn’t, so they barraged Russia with sanctions expecting it to collapse within months.

Instead, Russian oil exports are on the rise—to the reported chagrin of its OPEC partner Saudi Arabia—despite the EU embargo and the price cap that the G7 came up with to make sure the global market remains well supplied. The group has hailed the cap as a success, ignoring evidence of Russian oil being sold over it.

“If the aim of sanctions is to make a state alter course, the test of success would be to ask whether the target country has changed its actions,” the head of marine and aviation at insurance trade body Lloyd’s Market Association wrote in a letter cited by the FT.

“What is unclear to industry is why policymakers believe that 20 years of Russian inculcation and perceived grievance will be materially altered through further constraints against shipping and insurance,” Neil Roberts also wrote in the letter, published on LinkedIn.

He then went on to warn that any further sanctions that are currently being mulled over by Western government were unlikely to have any impact on Russia foreign policy but would definitely hurt “the world’s legitimate floating supply system.”

It appears that there was one thing Western governments forgot while they were devising their sanction punch against Russian oil. What they forgot was the fact that there aren’t only insurers and shippers in the West.

There are Russian insurance companies willing to provide coverage for tankers. There are Indian insurers and Chinese shippers. And they are happy to do business, as evidenced by the recent news around Indian shipping company Gatik.

Gatik got punished by Lloyd’s Register for carrying Russian oil, presumably above the cap, but just days later, an Indian insurer stepped up to provide the necessary coverage for the firm’s vessels, as noted by Roberts in his LinkedIn post.

Then there is the shadow fleet of tankers operated by small, unknown companies that carries millions of Russian barrels of oil and fuels across oceans on a daily basis. According to Trafigura, as of February this year, the shadow fleet numbered some 600 vessels. The commodity trader referred to it as “huge”.

“There’s a lot of people talking about how they can be clever and get rid of Russian oil. But it is a vast volume that needs to find a new home,” Trafigura’s co-head of oil trading, Ben Luckock, told Bloomberg at the time. “I think in the early days maybe that’s okay, but as time progresses there will be difficulties in the products markets.”

These would be the same people that are currently discussing yet another package of sanctions that would also target countries doing business—including oil business-with Russia.

Per a Bloomberg report, the discussion is still ongoing, and it is unlikely that the EU would go straight to blacklisting and punishing Russia’s trade partners, such as India and China. Yet the next sanction package may well include measures targeting companies from these countries.

While the EU discusses more sanctions, its sanction push against Russia got a reality check from a Finnish think tank that tracks Russia’s oil exports and revenues. That think tank, the Centre for Research on Energy and Clean Air, found that Russia’s oil revenues are on the rise, too, after dipping in the first two months of the year, to return to levels from last November—before the EU embargo and the price cap kicked in.

This may well be why insurers are speaking up despite the danger of being criticized for not praising sanctions uncritically. It appears that the push to punish Russia for its invasion of Ukraine is backfiring and hurting insurers and shippers in the West disproportionately.

It was to be expected. There really could not be any way things could have played out, not in a world that depends on crude oil. As proven time and again, oil always finds a way to reach consumers. And while the embargo and the price cap certainly deprived Russia of some oil revenues, they seem to have deprived Western shippers and insurers of more than some revenues.

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  1. Frank

    I always assumed it was glaringly obvious that Russia was simply too large and interconnected to the global economy for Iranian style sanctions to work effectively against it. I also assumed it was obvious that, because of Russia’s essentially defensive military doctrine, the closer it fights to its own borders, the more advantages it has. So I’ve been rather surprised that western policy makers allowed themselves to get drawn into this war and then tried to solve it with sanctions. I never like to assume stupidity, especially with enemies, but perhaps Martyanov is right that the West just can’t do strategy effectively, they rather prefer to throw their perceived weight around and coast on inertia.

    1. Piotr Berman

      “So I’ve been rather surprised that western policy makers allowed themselves to get drawn into this war …”

      This is a bit strange way of describing what happened. Who are western policy makers that did not pursue the goal of knocking out Russia, preferably balkanizing it — as we see in alternative history maps breaking Russia into small pieces. One can easily identify the pool of drivers of that policy, and those who were not exactly the drivers but enthusiastic followers, in Baltics and Poland, and sheepish followers of decisions made elsewhere, poor and/or indebted countries in the southern part of EU, plus Korea and Japan. But I would need a more precise pointer to “policy makers” who were opposing this course of action that was pursued step-by-step since the beginning of the millennium. A while ago, one could point to the leaders in France and Germany, but they proudly confessed that were in the pro-war game all along, but not too overtly to “allow Ukraine to arm herself properly”.

      I admit that I am nit-picking because I was surprised myself, in part because I grew up under Communism and I was taught that in the capitalist system decision are made ultimately by capitalists who are bent on increasing their profits. Either Marxism is obsolete, or we got a new system with aristocratic values that put the pleasures of domination as the main motivation, glory to the empire and so on, and thus giving Military-Industrial-Complex the influence vastly larger than the respective part of GDP.

      1. some guy

        There are many super-rich people who would happily lose or destroy half of what they have if they could be totally and utterly assured that they could thereby destroy both halves of what everyone else has. Pure sadism is often a strong motivator.

    2. elkern

      IMO, the failure of these sanctions is due more to the historical moment than Russia’s size.

      Decades ago, the USA was still regarded highly by a strong majority of the people of Earth. The collapse of the USSR gave us the chance to use that goodwill to build a new international system, and we blew it spectacularly. The basic corruption of our political model – unchecked influence of Big Money in elections – put our Foreign Policy under the control of NeoCons militarists and NeoLiberal MBAs. The US invasion of Iraq squandered any sympathy we got from the 911 attack. Democratic Admins (Clinton, Obama, and now Biden) promoted Sanctions as a weapon, then let NeoCons infest the bureaucracies which administer those sanctions (State, Treasury).

      Trump’s managerial incompetence meant that his time in office was relatively benign, but the mere fact of his election made it obvious to the rest of the world that US politics is insane.

      Both major parties had participated in the other main factor which now makes it possible for Russia to defy US sanctions more easily: the rise of China, and the associated decline of US manufacturing. Other countries also gained from the USA’s outsourcing frenzy; all retained post-colonial grudges against The West, so they it’s no surprise that they are starting to assert their independence from the “Rules Based Ordure”.

      Decades of Culture War politics has distracted Americans from the real problems we face as a country and destroyed even the illusion of social cohesion. Our dysfunctional political “system” – exacerbated by the “Loss of Executive Function in the West” that Yves wrote about last week – means that our Government is paralyzed and incapable of making changes to adjust to the new balance of international power.

      Our “leaders” should have recognized decades ago that the power of Sanctions would become diluted if overused. (OTOH, I’m glad that Democratic Presidents chose to kick that can down the road rather than giving in to GOP/FOX pressure for more overt conflict.)

      All these factors have made it possible for Russia to get around the sanctions imposed by US/NATO after the invasion of Ukraine. This was made easier by the fact that Russia intentionally *reduced* their dependency on Western trade after sanctions imposed under Obama (for defying our attempts to destroy Syria). So, Russia was actually *less* “interconnected to the global economy” now that it was a decade ago.

  2. Colonel Smithers

    Thank you, Yves.

    A dear friend / former colleague works on such matters at Lloyd’s and laments the work arounds, which, to be fair, have been around for many years, including when I worked there for HSBC at the turn of the century. As with Brexit, the UK’s / City’s lunch is coveted by many and easily lost.

    Unfortunately, I don’t want to ask more as he’s half Ukrainian and I’m godfather to his children.

    Readers may be interested in this,, coverage of an interview of former French minister Arnaud Montebourg about US economic warfare.

    1. Ignacio

      Thank you CS for the link. Under US hegemony sovereignty is a concept without meaning, your link shows. With it other concepts like democracy, ruling by the people, etc go equally to the sink. The concept of the US defending democracy all around the world well… should be revisited to say the least.

      1. Colonel Smithers

        Thank you, Ignacio.

        You can see why Hollande, egged on by Macron, was, ahem, encouraged to make life difficult for Montebourg and why the USA’s French proxies, often housed at the Atlantic Council, gunned after Montebourg and his “la remontada” campaign last year.

        BTW, I’m going to see Sara Baras perform in London next month. I’m friends with her cousins.

        1. Keith Newman

          @Ignacio, 6:00am
          I second those thanks to the Colonel. Very revealing. People have asked me what are the mechanisms of US control and I often don’t have answers. This is a very convincing response.

          1. Colonel Smithers

            Thank you, Ignacio.

            You’re right. I don’t know where Sara finds the energy, especially after having children.

    2. vao

      As with Brexit, the UK’s / City’s lunch is coveted by many and easily lost.

      Which leads to a question: why has nobody ever eaten City’s lunch so far?

      Was there a set of particular competitive advantages that made the position of British insurance, certification, and registration companies impregnable worldwide — in which case were the sanctions against Russia the circumstance that tipped things, or was it rather the Brexit? Or was the pre-eminence of the City just habit and tradition?

      I can grasp why the positions of, say, Airbus and Boeing, or TSMC, Intel and Samsung, are so dominant — they are based on highly specialized technical know-how, truly massive, often bespoke capital investment, and a huge patent portfolio. At least the last two aspects do not apply to the City. So why hasn’t Singapore, or India, or some other country taken a big chunk of that commercial and maritime insurance market already?

      1. digi_owl

        Do not underestimate the power of legacy and reputation.

        And Loyd’s is fairly unique in the insurance world, as i understand it.

        1. vao

          I do not underestimate inertial factors, but again:

          And Loyd’s is fairly unique in the insurance world

          In the 1980s, I learned about the only aspect in which Lloyds appeared to be unique when, after the company went through a very rough patch, the (affluent) part-owners of Lloyds realized they were indefinitely liable on their wealth for the debts of the company. I understand a number of them went bankrupt as a result, and Lloyds subsequently changed its charter.

          Once more, this is what Colonel Smithers states:

          City’s lunch is coveted by many and easily lost.

          If so, what really explains the endurance of the City?

        2. tevhatch

          Habit and culture are important, it removes the costs of constantly thinking about all the things, and avoids much that went wrong and can go wrong again, a sort of institutional memory. Ronald Coase’s ‘Nature of the Firm’ was a good start, much promise till Chicago got it’s meat hooks into him.

          1. Colonel Smithers

            Thank you, all.

            Yep. A mixture of legacy, reputation, inertia, expertise, capital capacity, risk appetite, English governing law for contracts, allied services, time zones, links with empire and shipping, spin offs into family wealth insurance und so weiter.

            Plus, and not to be undersestimated, a thriving social scene around Lloyd’s.

            1. Divadab

              Family business, eh? I would add generational knowledge to the list, almost epigenetic, as lloyds has been around for tens of generations and its collective mind experienced empires coming and going, wars won and lost, technology changes, and so on – all grist to the mill….

              All things utterly lost on the malignant infants, ignorant of anything but their supreme will to dominate, who run the imperial machine. Was there ever an empire run by such as these goblins?

    3. The Rev Kev

      Thank you, Colonel. I was a bit amused in that interview about the following section-

      ‘First of all, they use all the listening and intelligence systems that they built on after 9/11. They don’t listen to terrorists…well they certainly do and that’s very good…but they listen to foreign companies that compete with theirs.’

      I was reading stories about that during the 90s when they were using the Echelon system and that was thirty years ago-

      One other matter. You have mentioned several times the preferential treatment that Ukrainians get in places like Wiltshire over the locals. Somebody should get the local authorities put together a public document about everything that they have done for the Ukrainians and let them really boast about it. They would love it. But by the time this war winds up and things like inflation get supercharged in the UK along with a recession, then such a document would be really damning as people would demand an accounting of everything in that document – line by line.

      1. Colonel Smithers

        Thank you, Rev.

        You are right.

        That document exists, an audit part supervised by my mother. It also details how, unfortunately, central and local government employees of Polish and Ukrainian origin were, perhaps unwisely, allowed to volunteer to facilitate refugee assistance and money is unaccounted for, spent with little justification or spent inefficiently.

        A young techie of Pakistani origin disclosed to mum that, when working near a Buckinghamshire county council cabinet meeting, he overheard the (Tory) leader of the council say that, having Ukrainians, meant not having to take Afghans and others.

        It’s very, very political as you may imagine.

      2. ChrisPacific

        The bit about military decoupling at the end is interesting and provides another possible motivation for AUKUS (which came at the expense of an existing French contract).

      1. Colonel Smithers

        Thank you, Tom. No. I spotted yesterday.

        As Aurelien / David knows, I have long been a fan of Montebourg.

  3. John R Moffett

    It seems pretty obvious that the Biden administration is not competent and has no idea what it is doing. The Trump administration was chaotic, but Biden’s is truly disastrous. It seems that everything they have tried to do was A) wrongheaded, B) not thought out, C) counterproductive, and D) arrogant in the extreme. It would be hard to imagine an administration that had a worse 2 1/2 year track record. The most concerning part is that their arrogance is making them double down on everything because they don’t believe that they could ever be wrong about anything.

    1. Rolf

      The most concerning part is that their arrogance is making them double down on everything because they don’t believe that they could ever be wrong about anything.

      Bang on. Biden has always seemed quite besotted with himself, to me. With age, this hubris seems to have evolved to arrogant inflexibility, a situation made worse by surrounding himself with people chosen for reasons unrelated to competency, reinforced by a stenographic media.

      In the spring of 1968, LBJ, hardly a weak personality, recognized the country’s exhaustion with conflict, as well as his own limitations and age — 59 at the time and a heavy smoker who died of third heart attack in 1973 — in announcing his decision not to seek or accept nomination. And Eugene McCarthy/RFK were already in the running.

      The modern Democratic Party refuses to present any real alternatives, and seems incapable of any serious self assessment.

      1. Felix_47

        The hair transplant, multiple face lifts, artificial teeth, tight suits and aviator glasses. A fop. From the dictionary: Fop became a pejorative term for a man excessively concerned with his appearance and clothes in 17th-century England.

  4. eg

    I got regularly dogpiled by my Toronto friends whenever I so much as observed that Western sanctions are poorly designed in such a way as to hurt our own businesses and populations, let alone ineffective (as sanctions have mostly been for the past 80 years).

    I’ve mostly given up trying to remind them — there are none so blind as those who will not see …

    1. tevhatch

      They’ll ostracize you even more when events prove you right and they were wrong. Amnesia, feigned or real, is a good social skill.

  5. The Rev Kev

    I don’t know how organizations like Lloyd are going to recover from this. Sure, a lot of their business has gone east and is not likely to return but it is worse than that. When those eastern insurance firms are talking to future customers, they can say that they should give London a miss because you can never be sure if, because of geopolitics and sanctions, that they could find their insurance yanked abruptly leaving them in the lurch. It is now a trust issue and like gold kept in the UK, SWIFT transactions and the property of Russian oligarchs, you can now not depend on firms like Lloyds to have your back and you will be sold out depending on some future edict from Washington or Brussels. What a mess.

    1. Colonel Smithers

      Thank you and well said, Rev.

      I worked for a couple of years at HSBC’s Lloyd’s broking arm, around the turn of the century. This part of HSBC came with Hong Kong Bank, not Midland Bank, later rebranded HSBC UK.

  6. jfc

    Interesting article, and rich anecdotes from the comments, showing the soft under belly of the markets.
    Even from an outside perspective the idea of – as Eve has repeatedly commented – the usual bromides, haven’t had the effect ostensibly designed.
    The idea, though, that these sanctions may have been designed, more for those in the fold than other considerations, might play a part in the calculus – just musing here.
    As Russia drags out a war of attrition against Brussels and D.C., and with the many think tanks and policy experts they employ, it gets harder to understand why it is they led with their sanctions trump card ..

  7. Altandmain

    I remember a few months ago, there was a program on the Duran discussing this. Like so many other poorly advised policies, I suspect that this will backfire very badly on the West.

    Lloyd’s is going to have a much smaller portion of the world’s insurance even after this conflict. It’s clear that they have broken their most crucial asset. Trust.

    The same will be true of the whole Western insurance industry. Say goodbye to many international customers.

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