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Tankers ready for new trading map as Monday’s Russia ban looms

With just this weekend to go until crude tankers enter a whole new world, the noose is tightening around Russian oil exports.

Members of the European Union have agreed on a $60 a barrel price cap on Russian seaborne oil – a concept first developed by the Group of Seven (G7) nations. The price cap is part of wider sanctions kicking in on Monday.

A new set of extended regulations banning much of the Western world fleet plus ancillary shipping services from touching Russian cargoes will come into effect on December 5, coordinated by the UK’s Office of Financial Sanctions Implementation (OFSI), the Office of Foreign Assets Control (OFAC) in the US, and the European Union (EU), potentially heralding another dramatic shift in the seaborne tanker trades which have been cleaved apart in the opening near 300 days of war between Russia and Ukraine.

Russian shipowners are facing refusals from the Chinese authorities and companies regarding the recognition of insurance documents


Ben Cahill, senior fellow at the Washington DC-based Center for Strategic and International Studies, warned that the oil price cap will likely cause deceptive shipping practices to proliferate and will create new challenges.

“Market players manage to evade sanctions on Iranian and Venezuelan oil through ship-to-ship transfers, illicit tanker trade, and crude blending. Refiners and other buyers will probably find ways to beat the proposed requirements for trading Russian oil. They may seek letters of credit from multiple banks or use several subsidiaries to document deals at the approved price, while paying more in reality. The oil market is full of clever, rapacious people with strong incentives to bend or break rules. If the price cap is imposed, economic theory will collide with the messy reality of the market,” Cahill said.

In the run up to Monday’s much discussed crude ban – with a product ban to follow two months later – Russia-linked firms have been snapping up much old tanker tonnage, moving operations to overseas destinations such as Dubai, and practicing ship-to-ship transfers in a bid to keep oil volumes flowing.

The lack of Western insurance prevision from Monday is of paramount concern for the Russian economy.

Alexander Poshivay, deputy head of the Ministry of Transport, said at the Russian-Chinese Energy Business Forum, held via video link between Moscow and Beijing earlier this week, that China has begun refusing to recognise shipowners’ insurance documents issued in Russia, including by the Russian National Reinsurance Company.

“Russian shipowners are facing refusals from the Chinese authorities and companies regarding the recognition of insurance documents for ships and cargoes issued by the above-mentioned insurance companies,” he said at the conference on Tuesday as reported by RIA Novosti, a domestic news agency.

Also of concern for Russian shipping, yesterday saw the start of Turkey’s checking the insurance coverage of vessels passing through the Bosphorus and Dardanelles. Turkey now requires a letter from insurance companies confirming the provision of P&I insurance to the vessel.

“A letter is required from P&I insurance companies for ships carrying crude oil that will pass through the Turkish Straits under loading after 01/12/2022, stating the details of the vessel, cargo and voyage, and that the P&I insurance will be valid and complete for this vessel, voyage and cargo,” the Turkish instruction states.

Russia’s switch of crude shipments from west to east has been a topic covered by Splash in detail all year.

According to S&P Global Commodity Insights, Russia’s seaborne crude exports to Asia increased by around 31% year-on-year to an average 1.6m barrels per day in the first 10 months of 2022. While China’s seaborne crude inflows from Russia surged by 36% year-on-year to an average of 780,000 barrels per day in the January to October period, India’s buying from Russia jumped to 450,000 barrels per day during the same period, compared with 90,000 barrels per day in the same period a year earlier.

“While it remains to be seen how the price cap on Russian exports will ultimately play out, what is clear is that the tanker fleet is becoming stretched and traveling longer distances. This is against a backdrop of global oil stockpiles remaining at two-decade lows, which is keeping a consistent pull on any available tankers,” analysts at investment bank Jefferies stated in a bullish recent tankers update. 

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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