Strait of freedom: how the closure of the Bosphorus for ships without P&I insurance will affect the Russian Federation

Turkey’s decision to ban the passage of ships through the Bosphorus without P&I insurance may complicate food supplies – specialized companies will not take risks and cooperate with any carriers from the Russian Federation. Such fears in an interview with Izvestia were expressed in the Russian Grain Union (RGU). Ankara intends to introduce a new law on December 1. More than 95% of P&I’s world tanker fleet is insured by Great Britain, which from December 5 will stop working with ships carrying Russian oil. The Russian-Turkish Business Council suggests that Ankara may create a new insurance company that will not depend on Western sanctions. In the Turkish parliament, Izvestia was assured: the country will definitely not make decisions to the detriment of trade with Russia .

Tangential damage

From December 1, Turkey closes the passage through the Bosphorus of ships without P&I insurance. The ban will primarily affect tankers carrying oil , writes Bloomberg, citing a circular from the Turkish Ministry of Transport. Carriers will be required to provide a letter from their insurance company stating that P&I coverage is available for the particular flight and cargo. This term stands for “insurance protection and indemnification”, it stipulates liability to third parties. It is provided by a special P&I club.

Such insurance provides coverage for perpetual risks that traditional companies do not want to insure. For example, damage to cargo during transit, “war risks”, and environmental hazards such as oil spills and pollution.

UK – leader in P&I insurance : the kingdom provides 60% of the world’s coverage. The international group P&I Clubs is based in London and provides insurance for 95% of the world’s tanker fleet. From December 5, all insurance companies in the UK will Russian-oil-and-oil-products/uk-ban-on-Russian-oil-and-oil-products”>prohibited

from entering into contracts with ships carrying Russian oil

. By doing so, the Ministry of Finance of the Kingdom, in fact, will block carriers from the Russian Federation from accessing the largest insurance market in the world – Lloyd’s. From February 5, 2023, they plan to expand the ban on oil products from the Russian Federation.

This measure should not affect food , however, as RGU President Arkady Zlochevsky clarified to Izvestia, this may make it even more difficult for any carriers from the Russian Federation to obtain insurance . Which will ultimately affect the cost of goods.

— Russian companies still have insurance, — explained the head RZS. – But they became more expensive, and there were problems with the conclusion of contracts . If Turkey establishes that only certain types of insurance can pass through the Bosporus, then this will greatly increase the damage for all Russian companies, including those in the agricultural sector .

Transportation insurance in the Black Sea region is already expensive. In April, the underwriters charged up to 10% of the vessel’s value as an asset as an additional “war risk” premium. These prices may still rise after Turkey makes a decision on the Bosphorus, Arkady Zlochevsky concluded.

insurance authorities from clubs in friendly countries (for example,

PRC

) or P&I will be needed from the UK club.

The Turkish Foreign Ministry did not answer Izvestia‘s questions.

Izvestia reference

Grain deliveries from the Russian Federation mainly go through the ports in the Black and Azov Seas: Novorossiysk, Port-Kavkaz and Rostov-na – Don. And through the Bosphorus and the Dardanelles, exports went to other countries: Egypt, Italy, Greece and Turkey itself. Novorossiysk became the leader in export shipments of grain and its products for the 2021/22 season – 14.7 million tons of grain were sent through it. Port-Kavkaz shipped 9 million tons, the port of Rostov-on-Don – 3.9 million tons of products.

Co-founder of agricultural consulting group Consus Angie Setzer believes that Turkey’s decision will reduce the potential Russian Federation for the shipment of grain .

– Russia has always said that such measures limit its ability to supply food, and the West denied this. Now this will be proof of restrictions if insurers refuse to provide coverage to Russian shippers, the expert explained to Izvestia.

She noted: the UN is unlikely to “allow something like this to remain in place for very long” as it will limit shipping opportunities, raise world grain prices and hurt negotiations to extend the grain deal .

There will be other ways

Director of the Russian-Turkish business Council (RTDS) Aleksey Egarmin explained to Izvestia that Ankara’s innovation creates a dead end: “Organizations from the Russian Federation are unlikely to be able to insure transportation if the main company [from the UK] behaves unfriendly , and she is unlikely to go to any concessions that will allow this cargo to be insured after all. to reach some kind of agreement – this is in some kind of compromise solutions . There may be several of them at once. First, we see that there are transactions that should not be, but they are. And this is due to the formal overcoming of these thresholds and restrictions that will be observed on paper, but in reality everything will be much simpler , – explained the head of the council.

Second, Turkey can create a new insurance group or company for this situation. Third, “some other players may be admitted to the insurance market as a matter of urgency,” Alexey Yegarmin specified. The Russian Federation may have its own company for the insurance of sea transportation of oil , and the country is also exploring the possibility of cooperation with such organizations from friendly states.

— Turkish partners, no matter what they say, are also interested in the operation of this channel, because, in fact, it provides them with serious and stable revenues to the treasury. And how they will overcome this, we will find out in the near future, ”the director of the RTDS noted in an interview with Izvestia.

Izvestia sent a request to the Russian Embassy in Ankara.

Izvestia »

Turkey is not the first times uses the straits as a political tool. In March, Ankara took advantage of the Montreux Convention and banned the passage of warships through the Bosphorus and the Dardanelles. And on October 7, Turkey increased the payment for passage through the straits – and five times at once. The Montreux Convention allows the Turkish authorities to raise tariffs for the use of lighthouses, the evacuation of merchant ships and medical care. Ankara explained the increase in the cost of inflation and a decrease in the cost of gold. According to Turkish media, the republic’s annual income from passage through the straits will increase from $ 40 million to $200 million

Turkey and Russia are good partners

In the Turkish Parliament Izvestia » confirmed plans to introduce P&I insurance. However, they clarified: the goal was not to increase pressure on the Russian Federation .

— I don’t think that Turkey’s decision to without insurance will affect Russian ships. There may be some special rules that Ankara will introduce for ships from the Russian Federation. This, I believe, will also not affect Russian food supplies , – a member of the Turkish parliament, head of the Innovation Party Ozturk Yilmaz told Izvestia.

According to him, the ban will not affect trade between Russia and Turkey either – Ankara is trying to improve relations with Moscow and it is not in its interests to create obstacles for this.

– I believe that there may be some concern on the part of the Russian Federation. But if there are any problems due to the decision, which should be put into effect on December 1, then Turkey could also consider other options for Russian ships to facilitate their passage through the straits. Turkey and Russia are good partners, they cooperate in many areas, so they will not harm each other, especially at this stage, the parliamentarian assured. Turkey” Yashar Niyazbayev notes that the new restrictions will not affect the grain in any way – they are primarily related to the oil cargo.

– But I am sure that Moscow and Ankara a way out of this situation and create alternative opportunities,” the expert clarified to Izvestia. sanctions against Russian oil carriers. The insurance ban will be a key element in the G7 plan to set a price ceiling on Russian oil exports, notes in the Financial Times. But the EU countries cannot yet agree on the price of the future restriction: Germany and France propose to keep the ceiling at $60-70, while Poland insists on $20.

A ban on insurance of ships with oil from the Russian Federation from December 5 is introduced, in addition to London, the EU and the USA . Japan and Australia may also join. Russia has repeatedly stated that it will not sell oil to any country that introduces a price ceiling. Deputy Prime Minister of the Russian Federation Alexander Novak said on September 1: the Russian Federation will not work “on non-market conditions.” India and China, the two main buyers of Russian oil, have not confirmed their readiness to agree to the G7 price ceiling.

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