Since Russia began the invasion of Ukraine and sanctions became the West’s great weapon to undermine Vladimir Putin’s Government, one of the great unknowns in the oil market has been who insured the old and worn-out vessels that transport under the radar – hence the nickname ghost fleet or shadow fleet – Russian crude oil in the seas of half the world. What company was going to cover such risks? Everything indicates that while a few oil tankers continue to be covered by Western insurers, more and more owners of shipping companies or ships are turning to Russian suppliers backed by a state reinsurer. In some cases, there is even insurance from countries in Africa and Central Asia.
The Western sanctions scheme was based on the premise that not having western insurance It was equivalent to being left without operations on the seas. For this reason, the US and its G-7 partners, together with the European Union, designed a system that controlled through this scheme that ships did not transport Russian crude oil above the limit of $60 per barrel that they themselves set. This sharpened Moscow’s ingenuity so that these ships continued transporting at the highest possible price and without obstacles the valuable ‘black gold’ that pays for its war effort in Ukraine.
More reliable clues have recently been obtained. Estonian authorities examined the insurance of 150 tankers carrying Russian crude between July and August 2024, and found that between 20% and 25% of them were covered by Russian insurers. Still, it is estimated that a significant percentage of tankers could be operating with opaque insurance or did not cooperate with Estonian authorities. The data shows that 40% of the fleet analyzed had unidentifiable insurers. It has been found that insurance companies from Cameroon and Kyrgyzstan They covered some of these ships, but the focus is on Moscow.
As strategists Kyiv Institute of Economics (KSE) explain in a September report, Russia had to resort to internal agreements to secure its shadow fleet: “The creation of the G-7 and partner oil price cap forced Russia to find alternative insurance for your growing ghost fleet after the. attempts to form a multilateral insurance structure similar [al consorcio occidental] International Group with ‘friendly’ states (presumably, China and India) they won’t get anywhere“Not surprisingly, since Russia was effectively asking them to take on much higher risks and costs for inferior insurance in order to sell them oil at a higher price, the authorities had to resort to internal resources.”
The case of the important insurer Ingosstrakhwhich issued policies for the oil tankers of the Russian state shipping company Sovcomflot when the company was sanctioned and its vessels stripped of the coverage of the Western consortium, reveals the entire structure. These P&I (Protection and Indemnity) policies have been being reinsured by Russian National Reinsurance (RNRC)the Russian national reinsurance company. As detailed by the KSE Institute, it is a 100% owned subsidiary of the country’s central bank (the Central Bank of Russia). As Allianz reminds us, “reinsurance is an insurance contract through which an insurance company (cedant) becomes the insured of another insurance entity (reinsurer).”
According to the aforementioned report, at least three other Russian companies appear to be involved in providing P&I insurance to the ghost fleet: AlfaStrakhovanie, VSK Insurance and Sogaz Insuranceall of which are also backed/reinsured by the RNRC. All three companies have recently received approval from the Indian government to offer marine insurance, Ukrainian analysts add. Ingosstrakh, for example, is the main provider of spill insurance for oil tankers that transport the country’s crude to India for cargoes that exceed the Western price limit. Another name that slides from Bloomberg It’s the insurance company’s AlfaStrakhovanie. All of these insurers have gained prominence in covering Russian tankers transporting oil through the Danish and Turkish straits.
one of the greats questions What the growing role of these insurers behind the West raises is whether these RNRC-backed firms would pay in the event of a large oil spillespecially if the affected country is considered “hostile” by Moscow. A high possibility given that the Russian ghost fleet is made up of old oil tankers, often retired and put back into operation, without adequate security measures.
This change in coverage has generated uncertainty about the speed and completeness of compensation in the event of a tragic accident. The sensitivity of the issue was evident on October 17, when the United Kingdom authorities announced that they would begin to inspect oil tankers with “dubious insurance” when crossing the English Channel.
For Craig Kennedy, an associate at Harvard University’s Davis Center who has followed the Russian energy industry for decades, there are precedents from other industries for how the Kremlin might act if there were a large reinsurance claim that the RNRC had to help satisfy. . Kennedy points to Moscow, which blames Western sanctions for not being able to supply pipeline gas, and its insistence that Europeans pay for gas in rubles, as examples of how the Kremlin might respond. “If the Russians don’t want to pay, they probably won’t,” he says. Bloomberg.
Environmental threat
The intense traffic of the shadow fleet along the Baltic Sea is posing significant environmental risksas revealed by a recent study conducted by Estonia and with additional investigations by Bloomberg together with Danwatch. This investigation offers a clear vision of the risks that European countries run following the sanctions that are forcing numerous ships to operate clandestinely.
According to Mike Salthouse, head of external affairs at NorthStandard, one of the world’s leading marine insurers, those affected (such as fishermen and the tourism industry) could face delays in receiving compensation or even not receiving it at all. Before the war, most insurance for Russian tankers was provided by Western firms that imposed strict safety standards. But now that has changed.
The situation in the Danish Straits is especially delicatesince a good part of international trade and close to 7% of the oil transported by sea around the world circulates through them. Added to the poor condition of these tankers is that they often refuse to receive the help of maritime pilots for complicated maneuvers in narrow geographical enclaves. Danish Business Minister Morten Bodskov has expressed concern about “dubious insurance” covering these ships, and said Denmark is working with other countries to address the problem.
In the first half of 2024, 72% of Russian seaborne oil left Baltic and Black Sea ports, and 58% moved on shadow fleet tankers. “This means more than 75 million barrels per month on vessels that are on average 18 years old, have insufficient maintenance and probably inadequate insurance,” they point out from the KSE Institute. The truth is that these tankers cross European waters several times a day, an average of 2.9 through the Denmark Strait and the English Channel, 2.8 through the Strait of Gibraltar and 2.2 through the Aegean Sea. .
“Considering the imminent and significant threat What Russia’s shadow fleet means to the environment, we urge coalition countries to take swift action and implement a plan to ensure that all oil tankers passing through European waters have adequate insurance against oil spills that pay in case of incident,” they urgently ask from the Ukrainian think tank.
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