The UK government has introduced a ban on using the country’s oil tankers and on the provision of ship insurance services to facilitate the marine transportation of Russian oil to countries outside the UK, US and Europe, HM Treasury said in a statement on Thursday.
The decision is due to take effect for seaborne cargoes loaded after the start of the day on 5 December and follows a similar prohibition for US companies that was approved by the US administration, with a clarification issued earlier this week.
The approved legislation is intended to prevent countries from using the UK’s services to transport Russian oil unless it is purchased at or below the oil price cap set by a coalition of the G7 countries and Australia.
The level of the price cap will be determined by the coalition in due course, HM Treasury said, reflecting ongoing discussions between governments in the coalition.
“The coalition has agreed the price cap will be a fixed price that will be reviewed regularly rather than a discount to an index [of crude oils],” Reuters quoted a coalition source. “This will increase market stability and simplify compliance to minimize the burden on market participants.”
“The UK and its coalition partners will not make use of the cap, as they have introduced an import ban on Russian oil,” the HM Treasury said.
British Chancellor of the Exchequer Jeremy Hunt said: “We continue to stand by Ukraine in the face of Putin’s barbaric and illegal invasion. We’ve banned the import of Russian oil into the UK and are making good progress on phasing it out completely. This new measure continues to turn the screws on [Russian President Vladimir] Putin’s war machine, making it even tougher for him to profiteer from his illegal war.”
Licence to operate
The ban on services by UK companies, including insurance, brokerage and shipping, will be coupled with a General Licence that lays the basis for an oil price cap exception.
The receipt of such a licence will allow third party countries to continue accessing UK services on the condition that they are purchasing Russian oil at or below the cap.
Insurance is one of the key services that enables the movement of oil by sea, particularly protection and indemnity (P&I) insurance which relates to third-party liability claims, with the UK firms responsible for 60% of P&I cover across the globe, HM Treasury said.
In April this year, the-then US ExxonMobil-led Sakhalin 1 consortium that explots three offshore oil and gas fields in the far east of Russia, had to declare force majeure and halt shipments of its Sokol lend oil to customers in Asia after Russian Sovcomflot-operated tankers lost their P&I cover in the result of international sanctions. The project had stopped producing oil by the end of May.
The UK legislation on oil will come into force on 5 December with further measures on refined oil products coming into force on 5 February 2023 to align with European Union timelines for a parallel measure.
Meanwhile, this week’s clarification that was issued by the US Office of Foreign Assets Control (OFAC), told US shipowners and insurance firms that they will have a maximum of 45 days after the start of the day of 5 December to complete the transportation of any Russian oil cargo loaded before this deadline.
Putin and other Russian governmental officials have repeatedly said that the country will not deliver oil to those customers that adhere to the oil price cap mechanism.
However, an unnamed US official, commenting on market suggestions about Russia's alleged efforts to form a so called “shadow fleet” of old tankers to avoid the oil price cap, told Reuters that Russia could access enough vessels to continue to ship between 80% and 90% of its usual seaborne oil exports avoiding sanctions.
According to independent assessment by Moscow-based industry journal Infotek, Russian seaborne oil shipments fell by 275,000 barrels per day to 3.09 million bpd in September from August after continually increasing in the previous few months.
Moscow-based newspaper Kommersant quoted unnamed governmental officials as saying that Russian oil exports continued their decline in October, falling by an estimated 2%.
Russia's Finance Ministry said that it expects oil and gas exports to generate close to 283 billion rubles ($4.7 billion) of revenues to the budget in November compared to 275 billion rubles in October.