State guarantees likely to provide enough cover to keep Russian ships sailing, say Reuters sources

State-owned Russian National Reinsurance Co (RNRC) is now backing the bulk of insurance cover for Russian ships through state guarantees, after western companies withdrew from the market as part of sanctions, according to Reuters. Western insurance sources told Reuters that the cover provided by RNRC and other state guarantees would likely be enough to keep Russian vessels sailing. It reported that sources said Russian central bank-controlled RNRC is delivering state guarantees to Russian insurers such as Ingosstrakh, which insures Russian tankers including Sovcomflot’s fleet. Insurers withdrew cover for Russia’s state-run Sovcomflot as part of sanctions following the invasion of Ukraine. The news comes after Russia said last week it believes it can bypass the EU’s ban on insuring ships carrying Russian goods, including oil, to third parties by using state guarantees. According to a translation by S&P Global, Dmitry Medvedev, deputy chairman of the Russian security council, made the claim in a post on his official Telegram channel. “This problem can be solved – insuring supplies can be secured by using state guarantees within the framework of interstate agreements with third countries,” Medvedev said. Ursula von der Leyen, president of the EC, recently announced new sanction on EU insurers indemnifying Russian ships carrying oil, alongside a pledge to ban 90% of Russian oil imports by the end of 2022. The UK is reported to have reached an agreement with the EU to also ban insurance for ships carrying Russian oil. An announcement to confirm the insurance ban will apply to all European insurance carriers, including, crucially, the Lloyd’s market, and is expected soon. Law firm Reed Smith said at the beginning of this month that the coordinated EU and UK marine insurance ban, alongside the EU oil embargo, means that Russia’s ability to export oil anywhere in the world will be heavily disrupted. But it added that Russian state guarantees could soften the blow. “Shipowners will now struggle to find alternative cover as P&I Clubs cover around 90% of the world’s fleet. Sovereign guarantees could be an option, as could using smaller insurance markets with less established brokers, but there is still the question of whether ports would accept vessels with cover from anywhere outside of the International Group of P&I Clubs,” the law firm said. Europe is Russia’s largest oil customer. Reed Smith said Russia lacks significant storage capacity and may therefore be forced to stop pumping oil if, as seems likely, demand drops. The law firm believes that the EU and UK restrictions are likely to have a significant impact on Russia’s ability to export its oil. But it said there is the risk that Russia will simply look to divert its supplies elsewhere, principally to China and India that have both increased oil purchases from Russia within the last few months and are importing record levels of crude oil.

State guarantees likely to provide enough cover to keep Russian ships sailing, say Reuters sources

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