Russia’s Dependence on Western Insurers Limits Ability to Negotiate Higher Oil Prices

Russia’s reliance on Western insurers for over half of its oil tanker exports has limited the country’s ability to negotiate higher prices for its oil, and exposes the country’s exports to potential disruption. The Group of Seven and the EU have set a price cap of $60 per barrel for any shipment of crude using services based in their member countries, which curbs Russia’s energy export revenues. This restriction has driven Russian oil traders to seek alternative non-Western insurance coverage.

Russia Seeks Alternative Insurance Coverage for Oil Tankers

According to reports, Western insurers cover 50%-60% of the tankers that have carried Russian oil since early December 2023. Russia’s high dependence on insurance from G7 and European countries for shipping oil means the price-cap coalition has strong leverage, potentially leading to a negative impact on Moscow’s budget revenue while keeping oil flowing onto global markets.

Deputy Prime Minister Alexander Novak emphasizes the need to expand trade and economic cooperation with friendly countries such as the CIS countries and the Eurasian Economic Union. Furthermore, the country is working to create “new insurance and reinsurance systems accepted by Russia’s clients and partners in the current environment.”

Limited In-country Insurance Options

Russia’s incountry insurance options are limited, as more than half of its tanker fleet that exports oil is covered by Western insurers. Senior figures in Russia’s oil industry highlight their concern about the country’s dependence on Western coverage.

The remaining vessels carrying Russian oil are covered either by Russian or unknown providers. The United States Treasury estimates that about 75% of Russia’s oil could be moving outside of the price cap. The International Energy Agency estimated that, as of February 2023, the nation’s crude cargoes on average were sold well below the price cap.

Shift in Refined Products Trade Patterns

Changes in the refined products trade patterns are likely to boost demand for product tankers in 2023. Europe’s efforts to replace Russian refined products may create opportunities for the product tanker market, as distant markets like the Middle East, US and Asia are replacing Russia as a source of refined products for Europe.

The EU has imposed an embargo on seaborne imports of Russian oil into the bloc, causing Russia to explore new destinations for its refined products from 5 February 2023. Although it will be tough to divert its refined products from Europe to alternative buyers, Russian product exports to Turkey, Morocco, China, and India have risen after the embargo.

However, Russian exports to Turkey, Morocco, and African countries may not increase demand for product tankers due to their proximity to Russia. But China’s naphtha imports from Russia might boost tonne-mile demand for product tankers. Additionally, naphtha and gasoil/diesel cargoes from Russia to Brazil have increased but could displace product volumes from the Middle East and South Asia.

Saudi Arabia has started importing Russian diesel in 2023, which could inflate its diesel surplus and eventually move to Europe, increasing global diesel trade and tonne-mile demand. Analysts at Drewry Maritime Research anticipate positive tonne-mile growth and additional vessel demand in 2023 due to the shift in refined products trade patterns.

In conclusion, Russia needs to diversify its insurance coverage resources away from Western insurance providers given that it limits Moscow’s ability to negotiate higher prices for its oil exports. Moreover, long-term strategic planning is necessary for Russia’s efficient trade with other nations worldwide regarding oil tanker exports.

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