The EU's import ban on Russian oil and petroleum products, as of  December 5, 2022, has prompted Russians to conduct a variety of searches. Particularly, when discussing various buyer and route options for transporting Russian crude oil by tankers, new issues arose that needed to be solved. The daily transportation of 3.5 million barrels of crude oil by tankers is being mattered. But the EU has set a price cap of  60  USD per barrel for Russian oil. This decision was taken to limit Russia's earnings. In this context; Western insurance and shipping companies will only be able to transport Russian crude oil at or below the ceiling price. Because the vast majority of international insurers are centered in the EU or the United Kingdom, they must also comply to the specified limits.

Two critical issues arise at this point. The first is the possibility that Russians will use "Shadow Fleets" to gain access to former customers as well as companies, ships, and owners who want to do business with them. The second is the issue that to deliver insurance coverage in the Navigation Plan-1 in writing 24 hours before entering the Straits to Turkish Straits Ship Traffic Services by the tankers of 500 GT or greater which transit the Turkish Straits.

Let's start with the ‘‘Shadow Fleet’’... According to assertions of Western sources argue that Russians will try to reach their known customers and the companies, ships and owners who want to do business with them through ‘‘Shadow Fleets’’. Figures on tanker sales are provided to help substantiate these claims, but the identities of the owners have not been revealed. Because Russia's current tanker fleet appears insufficient to transport 3.5 million barrels of crude oil per day. It is being calculated how many additional tankers must be added to the existing tanker fleet in order to transport the crude oil in which Russian hands. As a result, comparisons are made with the sales of vessels whose owners’ identities are concealed. The ‘‘Shadow Fleet’’ refers to the entire fleet of ships owned by these people. Of course, it would not be misleading to state that some of the figures that emerged are estimates.

Diagram: Tankers required to carry Russia’s current 3,5 mB/D of seaborne crude exports.

Source: Statista

On the basis of the calculated value that the Russians required approximately 240 tankers to transport 3.5 million barrels of crude oil per day in Diagram 1, a comparative diagram was made in this context. The 60 tankers in the Russian inventory and the 75 tankers sold to unidentified buyers are 135 in total, and the potential tanker deficits are determined as 105 if considered  total need is 240. So far, some of this gap has been tried to be closed with 63 Greek tankers.

However, when the EU sanctions came into effect after December 05, questions were raised about:

- How to close the estimated 105 tanker deficit,

- Which markets the crude oil to be transported with the existing tankers and shadow fleet would be offered.

In a reasoning that can be made assuming that no help will come to the Russians from any country;

- Shadow markets in the Pacific and Europe can be provided by transferring crude oil through existing tankers and shadow fleets, particularly in the Pacific and Mediterranean at positions on uncertain route legs and/or

Map: Russian crude oil transportation scenario.

Source: Splash247 (Arrow)

- The Russians can support to transport crude oil to Latin America, India, and China with their own tanker fleet and shadow fleet, as shown on the map, regardless of the EU's ceiling price application.

Now one of the biggest obstacles to the EU's possible freeness outside the implementation of the price cap through these shadow fleets; as I mentioned this as the second important issue at the beginning, the written notification that must be made 24 hours before passing through the Turkish Straits also requires detailed cargo insurance information.

It's no longer satisfied with policies. It is stated that Turkey has also started to control the insurance coverage of ships passing through the straits of Istanbul and Çanakkale. A letter from insurance companies confirming that P&I insurance has been provided to the ship is also requested in the Navigation Plan-1, which must be submitted in writing to the Turkish Straits Ship Traffic Services 24 hours before the ship's entry into the straits.

In other words, a letter is required from P&I insurance companies for ships carrying crude oil that will pass through the Turkish Straits under loading after December 01, 2022, stating the details of the vessel, cargo and voyage, and that the P&I insurance will be valid and complete for this vessel, voyage and cargo.

The International Group of P&I Clubs (The International Group-IG) based in London and organizes the cover of 95 percent of the global tanker fleet has informed its members that such a letter of approval requested by Turkey can not be sent because it exceeded the guarantee and the P&I (protection and insurence) guarantee was not subject to EU sanction provisions. However, the EU's decisions cover the desired sanctions and controls on transported cargo based on price ceilings and below-price levels.

In fact, when this practice is taken into account for tankers, in a sense, it indicates whether that ship adheres to the EU's price cap application.

It can be said that an insurance policy to be shown by the ships may be sufficient for us. However, if P&I insurance approval letter is not requested, in the face of previously issued invalid or fraudulent policies, there may be difficulties in recovering damages to 3rd parties and the environment in accidents that may occur in the Turkish Straits.

As a result, the request for P&I insurance approval letter from ships passing through the straits appears to have contributed to the straits' security as well as the control of an international sanction.

Will this lead to a new tension between Russia and Turkey?

It is necessary to be taken into account that the price cap set by the EU as  60 USD is a set price to balance the budget of oil-exporting Russia.

In other words,  60 USD is considered as a figure above the cost of production by some sources. It is assessed that this number is set to provide an incentive for Russia to continue selling oil rather than close its wells. In fact, it appears that considerable care is taken not to completely close an competitor’s maneuvering space while attempting to corner him.  As a matter of fact, Ukraine argued that the price cap should be 30 USD.

From this point of view, it is conceivable that Western companies can agree with the Russians on the set price cap. On the other hand, there have been reports that some Russian shipowners are being rejected recognition of their insurance documents by Chinese authorities and companies. In this context, the fate of the ships that will pass through the Turkish Straits in the coming days will be coordinated with the insurance application reflected throughout the world.

References:

Bag, Mustafa, ‘‘Rus petrolüne tavan fiyat uygulanması ne anlama geliyor?’’, Euronews, December 05, 2022, https://tr.euronews.com/2022/12/05/rus-petrolune-tavan-fiyat-uygulanirsa-ne-olur  (Last Access Date: December 05, 2022)

Chambers, Sam, ‘‘Tankers ready for new trading map as Monday’s Russia ban looms’’, Splash247, December 02,  2022, https://splash247.com/tankers-ready-for-new-trading-map-as-mondays-russia-ban-looms/( Last Access Date: December 05, 2022)

‘‘IG Clubs clarification on Turkey’s requests of P&I cover confirmation’’, Safety4Sea,  December  05, 2022,  https://safety4sea.com/ig-clubs-clarification-on-turkeys-requests-of-pi-cover-confirmation/( Last Access Date: December 05, 2022)