Straight Arrow News contributor Peter Zeihan thinks June will be a very interesting month in the world of Russian oil. With maritime insurance now nearly impossible to purchase due to sanctions, Russian crude exporters will find their jobs nearly impossible to complete. If NATO grabs even one supertanker loaded with $300 million worth of Russian oil, the Russian state budget will weaken at a faster clip:

At the onset of Russia’s invasion of Ukraine, Europe, NATO and much of the industrialized world moved quickly to isolate Moscow economically. As part of those moves, Russia saw its seaborne oil export volumes fall off precipitously–to the tune of 1 million barrels a day. Volumes that large threatened to shut in several of Russia’s oilfields. 

Even as a collection of private interests moved against Russian seaborne shipments–crews, ports, captains, ship owners–it has taken European governments longer to formalize a sanctions package that denied ships carrying Russian cargoes access to the global insurance market. 

While some of you might think that shipping insurance is decidedly unsexy, it forms a bedrock of modern seaborne transport. You need insurance to enter and exit ports, to transit the Suez and Panama canals, to go through high-risk areas like Malacca and Hormuz and the Bab al-Mandeb. Without it, you risk holding the bag if any problems occur. (Imagine if your tanker gets wedged sideways in the Suez Canal. Or you’re stuck on either side of said ship. Or you run aground accidentally. Etc.)

Europe and the United States account for roughly 95% of the private insurance market. Outside of that, the only realistic option is sovereign indemnification of ships–having independent states insure cargoes. India and China have gone this route, eager to gobble up Russian crude with a $30+/barrel discount. Through some inventive accounting, ship registries, ship-to-ship transfers and more, Russian crude has steadily crept back to more-or-less pre-invasion levels. 

Enter American and European sanctions. The ad hoc group of shippers, crews and port workers denying Russian goods access to European sea lanes has more or less been formalized, with a global impact. As the international sanctions regime intensifies, India and China might do well to revisit their stance on importing Russian crude and decide to voluntarily reduce imports–similar to their approach at the outset of Moscow’s invasion of Ukraine.