The chief executive of one of the world’s biggest shipping insurers has warned of the growing risk of a disastrous oil spill after the knock-on effects of sanctions on Russia left thousands more ships without third-party liability cover from “well-tested” insurers.
“Nobody will be there to help clear up the mess [without sufficient liability cover],” said Rolf Thore Roppestad, chief executive at Norway’s Gard. “This is a social and environmental disaster waiting to happen, and it should be a big worry for all of us.”
The rare public warning from a senior insurer comes amid concern among big trading houses and some policymakers over the unintended consequences of the west’s sanctions regime, which has pushed the Russian oil trade into the shadows.
There is unease in the energy sector that smaller, less experienced traders are now moving crude over longer distances on older vessels with unknown levels of insurance provision.
In an interview with the Financial Times, Roppestad estimated that since Russia invaded Ukraine “several thousand” more ships were trading around the globe without cover from the International Group of 12 Protection & Indemnity Clubs. The group is made up mostly by European and US insurers, including Gard, which have historically covered about 90 per cent of the world’s ocean-going tonnage.
He raised concerns about the reliability and ability of non-IG insurers to handle a spill or other accident.
Among these vessels are much of the so-called shadow fleet, an aged group of oil tankers believed by brokers to have been amassed by Russia to circumvent western sanctions and often insured locally.
Roppestad said there was a much greater risk of a worst-case scenario in which “nobody will be there to pay” to clean up after an accident. “As the shadow fleet continues to grow, it will only become more acute.”
The International Group P&I clubs are mutually owned by shipowners and charterers and offer insurance for third-party liability such as crashing a vessel. P&I cover is critical to the shipping trade and a condition for entry at global ports.
Western insurers and brokers have expressed private concerns that P&I cover from non-IG insurers will be less reliable and result in more limited payouts.
“I am much less convinced about their reliability and ability to effectively handle a casualty if something goes wrong,” said Roppestad.
Many ships eschewing IG cover are relying on other P&I insurers in Russia and the Middle East, according to insurance experts and ship records. Iran and Venezuela have long used their own shadow fleets of several hundred vessels to skirt sanctions. Iran has its own P&I insurer, Kish, created after western insurers pulled back.
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“We have changed the logistics skill set around Russian oil in a very short period of time,” said Ben Luckock, co-head of oil trading at Trafigura, about the growing prominence of smaller, less experienced trading firms relying on older vessels. Trafigura was one of the biggest lifters of Russian crude before it wound down that business last year.
A big area of concern, he said, are the straits between Denmark and Sweden at the mouth of the Baltic Sea, which remains an important trade route for sanctioned Russian oil that now bypasses Europe on its long journey to new buyers in India and China.
“You have a lot of 17, 18 and 19-year-old boats transiting the Danish straits with [Russian] oil destined for Asia,” Luckock told the FT Commodities global summit last week.
The majority of tankers, particularly large oil tankers, are insured with the International Group, and tend to be younger.
In December, Turkey triggered a traffic jam of crude tankers outside its waters after demanding that all crude tankers passing through its waters had enhanced guarantees over their P&I coverage.
“The P&I clubs are there for their membership. They are looking to pay [out on claims],” said one London-based insurance broker, speaking on condition of anonymity. “You don’t know whether the Russians would say . . . we’ll just leave it.”
Additional reporting by Polina Ivanova in Berlin