The shipping industry is at risk of a significant environmental disaster due to the knock-on effects of Russian sanctions, according to Gard, one of the largest shipping insurers in the world. As thousands of vessels lack third-party liability cover from “well-tested” insurers, there is a growing concern that an oil spill could occur, leading to an environmental catastrophe. This article explores the reasons behind this growing threat and the implications for the shipping industry.
Background: Russian Sanctions and Shipping Insurance
Since Russia invaded Ukraine, “several thousand” ships have been trading without cover from the International Group of 12 Protection & Indemnity Clubs. The group, which mostly comprises European and US insurers, including Gard, has traditionally covered around 90% of the world’s ocean-going tonnage. However, the non-IG insurers are now taking up the slack, but there are concerns over their reliability and ability to handle a spill or other accident.
The Shadow Fleet
Many of the vessels without IG cover are part of the so-called shadow fleet, an aged group of oil tankers believed by brokers to have been accumulated by Russia to circumvent western sanctions and often insured locally. The increasing size of the shadow fleet only increases the risk of an environmental disaster as “nobody will be there to pay” to clean up the mess after an accident.
Unregistered tankers aka shadow fleet are vessels that are not registered with any maritime authority. These ships often operate under the radar, avoiding detection by authorities. They are used to transport oil and other hazardous materials, making them a significant threat to the environment and the safety of those on board.
P&I cover is crucial to the shipping trade and is a prerequisite for entering global ports. The International Group P&I clubs offer insurance for third-party liability, such as crashing a vessel. However, the Western insurers and brokers fear that P&I cover from non-IG insurers will be less reliable and lead to more limited payouts. The ships without IG cover are often relying on other P&I insurers in Russia and the Middle East, including Kish, Iran’s own P&I insurer created after western insurers withdrew.
Logistics of Russian Oil Trade
The logistics of Russian oil have changed rapidly, with smaller and less experienced trading companies increasingly relying on older vessels, which pose a significant threat to the environment. The straits between Denmark and Sweden at the mouth of the Baltic Sea are a significant cause for concern since they are a crucial trade route for Russian oil that is bypassing Europe on its way to India and China. Many 17, 18, and 19-year-old vessels are transiting the Danish straits with Russian oil destined for Asia.
Implications for the Shipping Industry
The shadow fleet poses a significant risk to the environment. There is no doubt that the consequences of an environmental disaster would be disastrous, particularly given the lack of insurance coverage. The logistics of transporting Russian oil have changed, leading to smaller and less experienced companies using older vessels to transport crude over longer distances. As a result, the number of ships trading without cover from the IG has increased significantly since Russia’s invasion of Ukraine.
In conclusion, the warning from Gard highlights the significant threat to the environment posed by the knock-on effects of Russian sanctions. It is essential to ensure that ships trading around the world have the appropriate third-party liability cover to deal with accidents. There is no doubt that the increasing number of vessels without sufficient liability cover is a social and environmental disaster waiting to happen. The energy sector must take heed of these warnings and ensure that all necessary precautions are taken to prevent an environmental catastrophe.