The disaster for Russia is not the embargo on oil, but on insurance

On May 31, after weeks of negotiations complicated by exemptions demanded by some countries such as Viktor Orbán’s Hungary, members of the European Union finally agreed to impose a massive embargo on Russian oil.

Demanded outright by Ukraine, which sees it as one of the most effective ways to drain Moscow’s finances and financially curb its war machine, this embargo could not have the full effect. – and further complicate the overall economic situation, as Joe Biden Treasury Secretary Janet Yellen noted.

Because Russia has already largely redirected its oil flows to other countries, delighted to be able to buy at a low price a Russian oil on which they do not spit at all: India and China, in particular, have already largely replaced the others. old customers shunning now the crude of the Urals.

“A European crude embargo, if only for that matter, will in fact only lead to a lengthening of supply chains.”Alan Gelder, an analyst for Wood Mackenzie, told Wall Street Journal recently. But precisely: the European embargo did not consist only in the cessation of imports by the continent of Russian crude.

Some lack of insurance

The text adopted by EU members hides the sanction, which, more than the embargo, could permanently hurt the Urals’ oil exports – hence Moscow’s finances: a ban on European companies „Insurance and reinsurance, in conjunction with their British counterparts, to sign contracts with companies whose ships carry Russian oil.

As Reuters recently explained, these insurances are extremely expensive, and mandatory for all transportation of oil from one point to another around the globe. Or, insurance companies like reinsurance companies are almost exclusively western.

In the long run, this is the whole of Russia’s global oil flows, which could be affected by the European Union’s decision. According to Reuters, Russia could seek to have ships transporting its crude to local insurance companies, or other nations not its own, which did not impose particular sanctions.

But these firms generally don’t have strong enough kidneys for such big contracts. As for reinsurance, which is essential for insurance companies, it should not be based on the goodwill of sovereign states, which must be guaranteed by the company of such tankers.

Nothing is impossible in theory, of course. But these major complications are largely hampering Russia’s ability to export its oil, and thus drying up Moscow’s finances somewhat.

Unfortunately, there is a downside: although OPEC countries are considering increasing production to make up for the lack of Russian oil in world flows, all of this could help short-term prices soar in the short term. of oil, thus fueling inflation that needs to break records, in Europe as elsewhere.

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