THE G7 price cap policy, introduced more than a year ago in an attempt to keep Russian crude on the international market while undermining the Kremlin’s ability to finance its war in Ukraine, is “increasingly unenforceable” in the view of shipping’s insurers.

An over-reliance on self-declared “attestation” documents to verify that trades have been completed under the $60-per-barrel ceiling set by the policy is “a flawed regime”, according to a written submission from the International Group of P&I Clubs to a UK Parliamentary inquiry examining whether Russian sanctions are working.

While attestation requirements have been tightened since the beginning of the year to require itemised pricing information, the IG has now publicly questioned the legitimacy of the rules given that neither P&I clubs nor their members are able to assess the validity of the information provided.

The price cap has now resulted in around 800 tankers leaving the 12 P&I clubs that make up the International Group and joining the so-called dark fleet*. That is a figure that will continue to grow, argues the IG, as a direct consequence of a regime that imposes severe restrictions and compliance obligations on entities that operate within the G7 while allowing entities outside the G7 the freedom to operate legitimately, provided there is no G7 nexus.

“The OPC [oil price cap] therefore appears increasingly unenforceable as more ships and associated services move into this parallel trade,” explains the IG submission to the inquiry, which will begin its hearings this week in London.

G7 nations and the EU imposed a $60-per-barrel ceiling on Russian crude oil in December 2022 to keep oil supplies stable globally while starving the Kremlin’s war chest. It bans Western companies from providing services such as transportation, insurance and financing for the oil sold above the cap, but widespread circumvention and a shift of oil trades into the dark fleet of tankers operating outside of G7 jurisdictions has limited the effectiveness of the policy.

The policy has also created a costly administrative and compliance headache for insurers, who have repeatedly warned governments that P&I clubs “should not be expected to be an extended arm of enforcement as the P&I clubs do not have statutory or constabulary powers”.

The submission is not the first time that the IG has raised concerns over the dangers of the price cap. But the submission comes amid diverging political appetites for enforcement, which is creating more problems for the insurers.

As the IG submission details, the P&I clubs are increasingly being asked by regulators for information that “appears to go beyond the necessity to gather information in consideration of enforcement action” by seeking information regarding any vessel going into Russia or intending to trade into Russia.

Quite apart from the fact that the clubs are unable to provide information on future trading intentions of its members, they argue that responding to information requests in the short time afforded by OFSI “are time and resource intensive and result in costly legal fees”.

The IG submission stands in stark contrast to many statements issued by both the UK and US governments defending the efficacy of the price cap regime, which they argue “is working to squeeze Moscow's revenues and stabilise energy markets”.

The IG also urges the UK government to push for greater alignment of the G7 states when it comes to sanctions policy and implementation. Specifically, the IG urges “urgent bilateral discussions” with India and China since these states seem to be receiving high volumes of Russian oil and “it is not entirely clear whether imports of such are OPC compliant”.

The submission argues that sale and purchase of Russian oil above the price cap has led to an expansion of “a parallel market of traders, shipowners and insurers” who operate out of G7 coalition jurisdictions.

This growth in parallel activities now appears to account for most of Russian oil and oil products shipped to third countries, which undermines the policy objectives of the OPC regime.

While the IG submission stops short of extending this argument, individual P&I clubs have privately warned that the natural consequence of this policy has been to undermine safety standards in the industry by forcing ships into the dark fleet where insurance, safety and class standards are no longer transparent.