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A New EU Proposal Could Cripple Russia’s Ability To Transport Oil Globally

  • A new European Union proposal could have a drastic impact on Moscow’s ability to shift its oil globally.
  • The proposal could ban Russia from accessing European insurers.
  • The move would be particularly powerful because 95% of the world’s tanker liability cover is arranged through a London-based insurance organization
EU Proposal

As part of the new 'imminent' sanctions on Russia - to include a phased ban on all Russian oil by the end of the year - it seems the European Union is ready to escalate even further, taking action to and beyond all-encompassing Iran-style sanctions. 

Now it's mulling going after Russia's ability to even ship oil on the high seas with a proposed ban on European vessels and companies' ability to provide services to Russian shipping entities. As Bloomberg is reporting Wednesday, the action would constitute "a move that could dramatically impair Moscow’s ability to ship its oil anywhere in the world."

If such a ban on Russia's access to European insurers were enacted, this would leave Russian companies exposed to the tune of multiple billions of dollars every time a single tanker leaves port, given risks like accidents and oil spills can bring with it such a price tag in terms of claims and legal action.

Russian energy companies would then be left with few or no alternatives, writes Bloomberg: "While member states are still wrangling over the terms, it’s a potentially powerful tool because 95% of the world’s tanker liability cover is arranged through a London-based insurance organization called the International Group of P&I Clubs that has to heed European law."

The report makes a direct comparison of such a course of action to a key way that Washington has for years been able to severely limit Iran's ability to transport of crude, forcing the Islamic Republic to cover its risks directly.

Related: The U.S. Shale Patch Is Facing A Plethora Of Problems

But huge hurdles still remain in terms of inter-EU unity on a Russian oil embargo, given the rise in countries demanding exemptions - led most notably by Hungary and Slovakia. And further erecting major hurdles for European companies is expected to be even more controversial given the ripple effect at home.

The ban would prevent any European entity or individuals from transporting Russian oil anywhere in the world, which will be particularly painful to the economies of smaller Mediterranean countries like Greece, Cyprus and Malta  - which play an outsized role in the European shipping and transport industry.

These countries have reportedly already registered their opposition to such a drastic punitive plan, which they say will only blowback on European companies and their ability to do business.

By Zerohedge.com

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  • Mamdouh Salameh on May 05 2022 said:
    It seems that the EU is competing with the United States about who will come up with the nastiest and most damaging sanctions against Russia.

    The EU isn’t only planning to ban Russian oil supplies but is now also mulling over a proposed ban on European vessels and companies' ability to provide services to Russian shipping entities.

    But a large percentage of Russian oil exports go to China by both pipelines and by ship in tankers via the Northern Sea Route (NSR) from the Arctic. The rest is shipped to the world on Russian tankers and also tankers of countries who don’t recognize Western sanctions.

    Moreover, such measures used by the Americans have failed miserably in preventing Iranian crude exports hitting 1.5 million barrels a day (mbd) and Venezuela’s crude being sold around the world.

    Still, the number of EU members opposing the proposed ban on Russian oil supplies or demanding exemptions is increasing. It only needs a veto from Slovakia or Hungary or Bulgaria to sink it. Once this is accomplished, the other proposed ban on European vessels will become irrelevant and die a natural death.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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