The European Union’s embargo on 90% of the oil it imports from Russia is the most severe punishment it has inflicted.
This is since President Vladimir Putin ordered the invasion of Ukraine.
But a smaller part of the latest sanctions package could turn out to be just as important. A ban on insuring ships carrying Russian oil would make it harder for Moscow to divert hundreds of thousands of barrels a day to other buyers in India and China, which could drive up global oil prices even further.
“Targeting the insurance side is the best way to stop Russian crude flows instead of just redirecting them,” said Matt Smith, chief oil analyst at market intelligence firm Kpler.
The European Union has announced that after a transitional period of six months, EU companies will no longer be able to “insure and finance the transport” of Russian oil to third countries.
“This will make it particularly difficult for Russia to continue exporting its crude oil and petroleum products to the rest of the world, as EU operators are important providers of these services,” said the Commission, the executive arm of the EU, in a press release.
The UK should join the EU effort. This would further tighten the noose, as Lloyd’s of London has been at the center of the marine insurance market for centuries.
So far, Russia has been able to cushion the blow of a drop in exports to Europe by attracting other customers with deep discounts. But if ships cannot obtain the insurance they need for deliveries, it will become much more difficult in the short term.
“The restrictions on Russian ship insurance are extremely important and one of the main reasons why we assume that all Russian barrels cannot simply be redirected from Europe to other countries, in particular China and India,” said Shin Kim, head of sourcing and production analytics at S&P. Global commodity outlook.
“The ban will add political and economic complications to the transportation of Russian oil.”