Sanctions loophole leaves insurers of Russian oil at sea

Insurance policies for ships transporting Russian oil are open to challenge. The fine print in these contracts doesn't guarantee compensation for a potential spill when it involves sanctions, according to the Financial Times. This situation presents a considerable risk.

Sanctions from Western coalition countries on Russian maritime transport impact insurance, which is essential for shipowners to operate. These companies are hesitant to provide services to ships associating with Russia. This is a critical point of leverage, especially since certification services primarily come from international classification societies like the British Lloyd's Register of Shipping or the Norwegian Det Norske Veritas. By the end of 2022, Japanese insurers had also aligned with the sanctions.

A certificate of seaworthiness, essential for insurance and the authorization to dock at ports, must be acquired. Under maritime law, lacking this insurance bars the ship from transporting goods.

Nonetheless, Russia circumvents these restrictions by utilizing the so-called "shadow fleet". That is, vessels registered under a different flag, insuring cargo with minor foreign companies or those serving the Russian market.

The Financial Times and Danish media group Danwatch have uncovered documents showing several Russian vessels in the Baltic Sea are covered by insurance policies that could easily be voided in case of an accident.

This particularly involves the company Ingosstrakh, based in Moscow. Exposed loopholes in the agreement mention a "sanction exclusion clause," rendering most claims for tankers carrying Russian oil void.

This situation, as reported by the Financial Times, could leave coastal countries in Europe and Asia facing substantial potential cleanup costs if a spill occurs.

Russia also relies on the so-called shadow fleet for its crude oil transportation, facilitated by its own vessels. The Russian oil transport company – Sovcomflot – boasts over 120 tankers, and theoretically, could receive support from Chinese and Indian vessels.

Additionally, there's the "shadow armada". As previously discussed on money.pl, these are ships that operate under a flag different from those of the sanctioning nations. This tactic isn't new and is often used to dodge taxes or sanctions, exploiting the free market and commercial law. In simple terms, it involves registering a ship under a flag that isn't associated with the shipowner.

While this mechanism isn't illegal per se, it opens the door to misuse and therefore is viewed negatively. It offers anonymity to the shipowner, conceals the identity of oil suppliers, and cuts costs, including taxes, particularly when the flag is from a country considered a tax haven. Hence, these vessels are also known as "cheap flag" or "flag of convenience".