The International Group of P&I Clubs (IG Group of P&I Clubs) highlights that a group of Seven-imposed (G7) cap on the price of Russian oil (OPC), appears increasingly unenforceable as more ships and associated services move into this parallel trade.
This validates previous concerns raised about the “price cap” imposed on Russian oil trade, which has led to the emergence of an alternative tanker industry operating beyond the boundaries of the cap. This “shadow fleet” consists of older vessels with unclear ownership structures, lacking sufficient oversight in terms of standards and safety, and where insurance coverage may be merely nominal, the International Group of P&I Clubs stated in a written statement submitted to a UK government inquiry assessing the efficacy of sanctions against Russia.
Enforcement of the price cap by the U.S. Treasury has reduced the number of ships that are willing to carry Russian crude, complicating Russian efforts to sell it and get profits. It is estimated that around 800 tankers have already left the International Group Clubs as a direct result of the introduction of the OPC.
The United States is part of an international coalition of countries (the Price Cap Coalition), including the G7, the European Union, and Australia, that have agreed to prohibit the import of crude oil and petroleum products of Russian Federation origin (Russian oil).
The International Group comprises 12 leading insurers globally, insuring approximately 87% of all merchant tonnage for ocean vessels. These insurers operate under the price constraints established by the G7. Since the implementation of these constraints, they have seen a loss of around 800 tankers from their fleet to newer, less-established insurers located outside the G7, many of which have questionable financial stability.
Clubs will take immediate action either to terminate the contract of insurance with the insured or, if available, invoke the cesser clause effectively ending the relationship between the insurer and insured. The International Group is concerned that increasing responsibility and obligations on companies in the G7 coalition will result in a further migration of trade activities and ancillary services outside of the G7.
According to data, in April, prices for Russian Urals crude oil rose sharply to over $84 per barrel, reaching levels not observed since July 2022 and significantly exceeding the G7, EU, and Australia’s imposed price cap of $60 per barrel in December 2022. Urals oil is the reference oil brand used as the price benchmark for Russian oil exports.
This cap was intended to curb Russia’s financial support for military actions in Ukraine. The price of Urals oil has followed the upward trajectory of oil benchmarks, coinciding with a notable increase in seaborne crude exports to their highest level in 11 months during the second week of April. The primary recipients of these exports have been Asian countries, with China and India leading the way.
