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Make sanctions consistent again

Liberal democracies are ramping up pressure on Russia and Iran, but there are limits to the sacrifices the maritime industries can be asked to take on

If Western governments are going to tie shipowners’ hands behind their backs, at least make the playbook clear and congruous

POLLSTERS don’t routinely conduct separate surveys of the foreign policy preferences of shipping and marine insurance professionals. But their opinions on such matters will likely tend to reflect the wider outlook in the societies in which they live.

The clear consensus in liberal democracies is that Russia should be punished for its invasion of Ukraine and that the world would sleep easier if Iran were not in possession of nuclear weapons.

Considered purely as an abstract ethical question, sanctions in support of these ends are unobjectionable and command majority support in Europe and North America.

But sanctions are not purely an abstract ethical question. They impose costly obligations on for-profit shipping and marine insurance companies, in contravention of the free-market liberties our societies also esteem.

They have singularly not managed to cripple the Russian economy and there is little to suggest that the impending return to the pre-2016 status quo will have much impact on Iran either.

Critics contend that manifest inefficacy renders them almost pointless. So why should Western shipping and marine insurance be burdened with such detriments, especially when their Asian counterparts are actively encouraged to keep on trading?

To the best of our knowledge, no industry leader has publicly spoken out against sanctions.

Although there is some evidence of tanker operators cheating on the current $60 per barrel price cap on Russian crude, a certain degree of malpractice is always going to be the way of this world.

The key thing is that there has been no return to the all-but-open refusal to heed the embargo on the white supremacist regime in what was then Rhodesia in the 1970s, for instance.

But it needs to be emphasised that the global majority does not live in liberal democracies. China is more than happy to buy discounted crude from Russia, while selling it full price arms and maintaining warm relations with Iran.

An increasing number of countries follow Beijing’s lead. Shipowners domiciled in BRICS member states, and BRICS member states wannabes, can happily ignore the Western playbook.

By contrast, contradictory government diktats are leaving their Western opposite numbers increasingly tied up in knots, as two Lloyd’s List stories this week illustrate.

As we reported yesterday, from next month the regulations governing the Russia price cap will diverge slightly between the EU and the UK, and markedly between those parties and the US.

This has understandably alarmed the Lloyd’s Market Association, which has highlighted the risk of hull, cargo and P&I underwriters being slapped with penalties purely because of these incompatibilities.

 

 

 

Current contractual clauses were written on the assumption of an ongoing united front, a core premise that has just collapsed.

In practice, British and European insurers may not be able to follow a US lead unless the US party adopts the UK and EU stance.

The complications apply to shipowners too. Those in the UK and the EU are forbidden by statute from following US secondary sanctions. But if Trump is feeling capricious — and when doesn’t he? — he could choose to apply the policies anyway. Damned if you do, damned if you don’t.

Meanwhile, it seems to be that the clock is about to turn back on sanctions with Iran. The UK, France and Germany — acting collectively under the moniker of E3 — have indicated displeasure with the latter’s continued drive for the bomb.

Israel and the US feel free to conduct extra-judicial assassinations of Iranian atomic scientists and to blow up uranium enrichment plants. London, Paris and Berlin obviously won’t go that far.

Instead, they are set to invoke the “snapback” clauses in the Joint Comprehensive Plan of Action sanctions relief deal signed by Tehran and six leading powers in 2016, probably in October.

This is more by way of a symbolic show of support for Jerusalem and diplomatic alignment with Washington than anything that would make much difference in the real world.

While it would make it even harder than it is now for shipowners to trade with Iran and for marine insurers to cover them, volumes are already close to zilch.

But beware of the law of unintended consequences. Snapback may simply push Iran closer to Russia, thereby negating much of the object of the exercise.

Iran still boasts some sizeable domestic fleets, including Islamic Republic of Iran Shipping Lines and National Iranian Tanker Co.

For decades, even after the Islamic revolution that brought the ayatollahs to power in 1979, these were happily entered with British P&I clubs. But no more, and not again, at least any time soon.

Once again, there is a prospect of regulatory divergence. The EU was not a party to JCPOA, leaving shipowners outside the E3 facing uncertainty about the hoops they must jump through.

Quite simply, we should not be where we are now. Politicians often boast about their ability to devise what Westminster jargon brands ‘joined-up policies’. That handwriting should extend to the multilaterally as well as domestically.

Prosecutions under the blocking legislation have been thankfully rare, at least in the UK. But we are not characters in a Joseph Heller novel; the very existence of this gratuitous Catch-22 creates uncertainties shipowners and marine insurers could live without. The conundrum should be resolved, one way or the other.

If Western governments are going to tie shipowners’ hands behind their backs, the very least they can do is to lay down clear, consistent and congruous rules.

 

 

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