Insurers urged to reassess Russian oil coverage amid UK and EU price cap changes
An insurance association has urged its members to assess their exposure to Russian oil as the UK and EU prepare to update their oil price cap regimes.
The oil price cap, introduced by the G7, EU, and Australia, aims to restrict Russia’s oil revenues by preventing Russian companies from selling oil above a specified threshold.
In July, the UK and EU announced plans to lower the price cap to further limit Russia’s ability to fund its war in Ukraine. The new measures take effect on 2 September in the UK and 3 September in the EU.
However, the US reportedly opposed the European initiative and did not support lowering the Russian oil price cap.
Because of the divergence in price caps among the three powers, the Lloyd’s Market Association (LMA) has warned its members to reconsider their exposures, as this could affect sanctions clauses.
LMA’s legal and regulatory director, Arabella Ramage, explained: “If a US insured or US lead market uses a $60 oil price cap, the impact for EU or UK insurers could be that any standard sanctions clause in their policies is triggered.”
The standard LMA oil price cap clauses were drafted with the expectation that the oil price cap coalition would set the same price, stating, “Price cap means the price, or cap, set for the purchase or sale of the Russian oil or the Russian oil product by the price cap coalition as may be amended from time to time,” and refer throughout to the ‘relevant’ price cap.”
As a result, Ramage highlighted: “The divergence between the UK, EU and US approaches means in practice that UK/EU entities may not necessarily be able to follow a US lead on business involving Russian oil unless the US party adopts the UK/EU position on price cap and ensures that they can obtain the necessary supporting documentation to demonstrate compliance with UK/EU requirements.”
The insurance body has advised its members that any underwriting entity with exposure to Russian oil, including hull, cargo, political risk, P&I, and liability or reinsurance, “should take steps to protect themselves appropriately.”