West Insurers Support Shipping Russian Oil
Western tanker insurers are worried that they could unintentionally support transporting Russian crude oil above the $60 per barrel price limit. The problem arises due to the lack of transparency in purchases and transactions since the G7 imposed the price cap in December 2022.
P&I clubs check if the shipments are within price limits. But they're concerned about Russia's new customers and their tactics to hide the real price of crude oil. It might be difficult to verify the true trading price of Russian crude cargoes.
The price of Russia's Urals crude oil has gone up to nearly $60 per barrel due to the OPEC+ cuts. ESPO crude oil has been trading above $60 since the EU embargo and price cap started in December.
The U.S. Treasury Department has issued warnings to insurers. They say that the insurers may have breached the price cap mechanism in shipments out of Kozmino. These warnings have been given recently. The insurers concerned are from the U.S. and other Western countries.
Western insurers are unsure if they have insured crude cargoes sold over $60/barrel.
This week, Lars Lange, the secretary general of the International Union of Marine Insurance, said they cannot evaluate oil shipment prices.
Mike Salthouse from NorthStandard P&I Club explains that ship owners and maritime cargo insurers can't accurately determine the value of Russian cargo.
Salthouse told Reuters that Russia shouldn't reveal the true price of its oil exports. This way, both the exporter and the receiver benefit because they can sell at a higher price than the price cap.
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The U.S. Treasury Department recently issued a warning to American companies. They were told to watch out for potential ways of avoiding price caps. The main focus was on ESPO shipments from Kozmino.
OFAC knows that ESPO and other Russian crudes traded through Pacific ports, like Kozmino, might be violating the price limit and using services offered by Americans. This was stated by the Treasury Department's OFAC.
The American service providers might not know they're offering covered services related to Russian oil sold above the price limit. The foreign parties implicated in the exports may have submitted inaccurate or fraudulent documents or used dishonest methods.
Most Russian crude transactions at Baltic Sea ports were below the price cap in Q1 2023. The same goes for the Black Sea port of Novorossiysk. However, more than 95% of crude volumes exported from Kozmino were priced above $60 per barrel. A report from KSE Institute highlights that the export price of Russian oil out of Kozmino averaged $73 per barrel.
Researchers from an institute in Ukraine say that many voyages from Kozmino involve ships owned or insured by Western companies. They also found that almost all transactions had prices above $60 per barrel. This could mean that some companies are breaking the rules and putting a cap on prices.
Sanctions seem to be making Putin's oil profits go down. This is because exports of crude oil and oil products went down by $15.6 billion in the first quarter of 2023 compared to the fourth quarter of 2022. However, researchers say that export prices for Russian crude oil in 2023Q1 show that there are still people violating the sanctions. They think that we need to be more strict about enforcing them.
Analysts warn that ship owners and insurers will encounter difficulties if the Urals price exceeds $60 per barrel, which has been the case so far in April.
Erik Broekhuizen from Poten & Partners wrote that if Russian crude stays over $60 per barrel, things could get more complex.
The price cap increased the number of unreported oil tankers. The 'dark' or 'shadow' fleet transports Iranian and Venezuelan oil. They also transport more and more Russian oil and products. The larger volumes are a result of the price cap.
Last month, a study by Lloyd's List found that over 440 tankers, weighing over 30,000 tons and averaging 20 years old, were only used to ship oil from Iran, Venezuela, and Russia. The owners of these ships are hidden behind complex corporate structures.
The amount of tanker ships has gone up by 180 in the last year. Western sanctions on Russian oil helped make this happen. The oil is now being shipped using unregulated and secretive methods.
Tsvetana Paraskova wrote a blog for Oilprice.com.
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