The United States has called on European governments to find a way to soften the blow that the oil market will suffer after a ban on insurance for vessels carrying Russian crude and fuels comes into effect, the Financial Times has reported, adding that Washington is concerned that the ban will lead to even higher oil prices.
The European Union and the United Kingdom agreed to ban insurers from providing coverage for Russian oil cargos last month in a bid to reduce Russia's access to export markets further and, as a consequence, its oil revenues.
"It's hard to underplay how significant a move this is by the UK and EU. Taking out insurance will have a huge impact on Russia's ability to export its oil. It's one of the toughest sanctions Europe has in its armoury," RBC Capital Markets' Helima Croft said at the time.
However, it seems the ban would be tough on everyone else as well, with the U.S. particularly concerned. Per the FT report, Washington touted the idea of limiting the insurance ban to certain price levels, with insurers being allowed to insure Russian oil cargos under a price cap, but European governments were not really on board with the idea. Moscow is also unlikely to be on board with this idea.
"They are afraid prices will skyrocket," the FT quoted an unnamed European official as saying, adding that the U.S. was also pressuring its G7 partners to find a solution to the price-sanction conundrum.
Per U.S. deputy secretary of state Wendy Sherman, there were "very intense discussions between the US and Europe to do this in a really constructive way that hurts Russia but not Europe further, or the rest of the world".
Meanwhile, there have been warnings the insurance ban will not have the intended effect. Former IMF chief economist Olivier Blanchard notably said earlier this month that "Oil tankers will simply not be able to carry Russian oil at all. The result will be a - potentially large - decrease in Russian oil exports. Yes, Russia will suffer a loss of revenues, but Europe and the US will probably suffer from a substantial increase in world oil prices."
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More