EU flip-flop on Russian coal sanctions brings doubts for oil

A U-turn by the European Union that’s allowing Russian coal to move more freely has led to uncertainty in insurance and shipping markets about whether a key part of the bloc’s oil sanctions could also be watered down.

The EU published new guidance this week saying that the transfer of coal and fertilizer to countries outside the bloc is now allowed, citing energy security concerns. That followed an intervention in August that surprised insurers and shipwowners because it had indicated a full prohibition on Russian coal shipments. 

The coal pivot could be important for for oil because the bloc has imposed similar measures for crude and fuels that don’t enter into force until December and February respectively. The US is alarmed that Europe’s steps -- including a ban on providing insurance that’s central to trade -- could drive up oil prices. It is trying to get G-7 nations to support a Russian oil price cap to give companies access to those key services.

“If they go about the oil sanctions and price cap in the same way, it would be quite difficult for industry,” Mike Salthouse, global claims director at The North of England P&I Association Ltd., said of the shift on coal. “The point about effective sanctions, ones that everyone understands and can comply with, is that they have to be consistent and clear. The position that the EU has adopted on coal and fertilizer has been anything but that.”

Salthouse is also chair of the sanctions committee of the International Group of P&I Clubs, whose member organizations cover 95% of the world’s tankers against risks including oil spills. 

The shift on coal has created wider uncertainty for vessel owners and their insurers, according to Salthouse.

“You’re still in the back of your mind saying saying: ‘this time last week they made it clear it was unlawful and could do the same in a week’s time’,” he said.

When it made its adjustment on coal, the European Commission did stipulate that “EU operators remain, however, forbidden from insuring and financing the transport, in particular through maritime routes, of oil to third countries EU operators remain, however, forbidden from insuring and financing the transport, in particular through maritime routes, of oil to third countries.”

Different Approaches

The US, UK and European Union all have different approaches to Russian oil sanctions. 

The EU has set out measures that include banning insurance and services for crude oil shipments to third countries.

For now at least, the UK -- an insurance hub in its own right -- only bans covering oil cargoes destined for its own shores. 

The US, meanwhile is pushing G-7 nations to back its plan for an oil price cap. Those who pay a capped price would then get access to EU insurance and other key services, under the US plan.

While their policies could yet become more coordinated, Europe’s pivot on coal has left insurers concerned about a lack of clarity, Salthouse said. 

“If you’ve had your fingers burned once, you might approach the carriage of oil with similar concerns, recognizing that the sanctions position might change from the point at which you conclude the contract to the point at which you carry the cargo,” he said.