The EU is going after Russia's global oil sales by cracking down on anyone from insurers to ship owners, report says
- The EU plans to phase out imports of Russian oil, but reports suggest the bloc will ban anyone from shipping or insuring it.
- Draft legislation suggests the EU's ban will affect shipments to any country in the world, according to Bloomberg.
The European Union is planning to phase out imports of Russian oil to cut off financing for Moscow's war in Ukraine, but it's not stopping there.
It's also proposing a ban on European ships and companies providing any service related to the shipment of Russian crude and refined products anywhere in the world — such as financing, insurance, or even technical support — according to draft legislation seen by Bloomberg.
Russia produces some 11 million barrels of oil a day, roughly equal to 10% of total world daily output. It exports around 7 million barrels a day to customers around the globe, on tankers and through a vast network of pipelines that stretch to Karlsruhe on the German/French border and all the way to Vladivostok on the Sea of Japan to the east.
On Wednesday, European Commission President Ursula von der Leyen announced a sixth round of sanctions proposals include a complete import ban on all Russian oil. The measure would cover both crude and refined products, such as diesel, and would affect all shipments, both seaborne and via pipeline.
Brent crude futures jumped 4.1% on the day to $109.46 a barrel. The oil price has risen nearly 40% so far in 2022, topping $100 a barrel for the first time in years, driven in part by the prospect of direct sanctions on Russia's energy sector.
The EU accounts for almost half of all Russia's oil exports, and its proposals mean it could ditch all of that over the coming six months.
However, the draft legislation shows the bloc is proposing a crackdown on any shipment of oil that originates in Russia or has been exported from there, to any country, even those outside the EU, Bloomberg reported Wednesday.
"Depending on the timing of this ban, it's a potential big deal, given the current shortage of global tanker capacity and EU carriers' huge role in Russian total oil exports," Jacob Kirkegaard, a senior fellow at the Peterson Institute For International Economics, tweeted.
Robin Brooks, the chief economist at IIF, tweeted a chart last week that shows Greece is by far the biggest shipper of Russian oil and oil products. He said the EU should target the global tanker fleet if it wanted to make any embargo truly effective.
"Russian storage capacity is super limited, so Russia's oil wells will start flooding very quickly. So, even if you just have a one month window before tankers start back up again, it'd do a lot of damage to Putin," Brooks said in a tweeted response.
With the European market already effectively out of bounds for at least 1 million barrels a day of crude, Russia has sought out buyers further afield. It is shipping growing volumes to China, India and other consumers in Asia.
However, Russia's flagship Urals crude is generally loaded onto smaller tankers that rarely make such long voyages. Given that, there would be more call for transferring this oil to VLCCs — supertankers capable of carrying as much as 2 million barrels of oil — to make those trips. The EU's draft legislation suggests even this could become impossible.
"It shall be prohibited to provide, directly or indirectly, technical assistance, brokering services, financing or financial assistance, or any other services related to the transport, including through ship-to-ship transfers, to third countries of crude oil and petroleum products that originate in Russia or have been exported from Russia," Bloomberg reported the draft text as saying.
The West has restricted exports from countries under sanction via clampdowns on insurers before, specifically with Iran and Venezuela. There will still be insurers willing to extend cover to a shipper, but the risks and the costs are far higher than they otherwise would be.