DONALD Trump’s increasing frustration with Vladimir Putin and a looming oil glut have resulted in a significant shift in sanctions targeting Russia.

While previous efforts from the US, UK and EU have sought to keep Russian crude flowing, albeit at a discounted price point, the attitude from senior policy officials within sanctions departments in all three regimes seems to be that Moscow’s oil should now to be considered “off the market”.

The problem for shipping is that while policy attitudes may have shifted, the legislation has not, and shipping is getting caught in the gap.

The inclusion of three Dynagas-managed liquefied natural gas carriers in the most recent round of UK sanctions targeting Russia, apparently despite engaging in entirely lawful trades, has left shipowners, insurers and lawyers deeply concerned that they are about to become sanctions targets.

Dynagas principal George Prokopiou and his lawyers had initially considered the designation of a trio of 2014-built LNG carriers on 15-year charters to Yamal Trade in Singapore, a marketing and chartering arm for Russia’s Yamal Arctic gas project, to be an “unfortunate mistake”.

After all, the Yamal terminal is not sanctioned by the UK, the cargo is not sanctioned, the charterers are not sanctioned, so why designate three tankers that had been trading lawfully?

While neither Prokopiou nor the UK government are publicly commenting on the status of Dynagas’ bid to have the ships removed from the sanctions list, Lloyd’s List understands that the ships were never considered to have engaged in anything approaching an unlawful act.

Instead, they were targeted as part of a bid to disrupt and destabilise Russian gas revenues.

Under the UK regulations, ships can be designated if they are deemed to be engaged in activity that either benefits or supports the Russian regime or in some way undermines or threatens the territorial sovereignty or independence of Ukraine.

Such criteria are sufficiently broad to capture any vessels engaged in a lawful oil price cap-compliant trade involving Russia, which means that Prokopiou is not the only shipowner questioning why there is still an oil price cap regime left in place.

That leaves the shipping industry caught in an impossible situation, according to several lawyers and marine insurance executives interviewed by Lloyd’s List.

“If you specify a vessel, there is an assumption that they’ve done something unlawful. Now what you’re saying is any trade to Russia potentially can undermine the territorial integrity of Ukraine and is therefore liable to specification,” said a senior maritime insurer who is regularly consulted by the UK government on sanctions policy.

That contradiction between the goal of the oil price cap to keep Russian oil flowing lest a spike oil price roils the market, and the legislation that targets ships carrying that same oil because it supports the Russian economy, has always been there. It’s just that nobody paid a huge amount of attention to it while the UK government was not designating ships for engaging in entirely lawful operations.

“The law has not changed. There has always been a contradictory nature to the UK sanctions regime that permits UK entities to support the price cap compliant carriage of Russian petroleum products, but at the same time has a designation regime that is broad enough to include those very activities,” explained shipping legal expert Patrick Murphy, a partner at Clyde & Co.

“What has changed is that the UK has started actually designating people for those grounds. That’s sparked serious concern and confusion,” he continued.

The law may not have changed, but the political and economic dynamics surrounding the oil price cap have.

The need to limit the Kremlin’s revenues without affecting the number of barrels sold is less of an issue when forecasts are warning that the oil market is heading for oversupply.

The International Energy Agency earlier this week forecast a surplus of 4.1m barrels a day next year, equal to almost 4% of world demand.

That around 1.4m barrels a day, or around a third of Russia’s seaborne exporting potential, remain on the water in tanker rather than unloading suggests that the latest US sanctions against Rosneft and Lukoil are starting to bite, with no real concerns of a price spike in sight.

Meanwhile, increasing political pressure to tighten the screws on Moscow is rubbing up against the fact that the existing list of sanctioned vessels directly engaged in shadow fleet Russian trades has grown significantly over the past year.

Around 35% of the shadow fleet*, as defined by Lloyd’s List Intelligence, is currently not subject to sanctions leaving room for more targets to come, but the available list of targets for the UK to designate is reducing.

As the focus switches to direct disruption of Russian energy trades, rather than oil price cap compliance, the rationale for designation is becoming increasingly tied to the more general catch-call criteria of supporting Russia’s economy or destabilising Ukraine’s.

“We are sending a clear signal: Russian oil is off the market,” UK Chancellor Rachel Reeves said on October 15 as the UK rolled out its latest tranche of sanctions designations, including the Dynagas trio.

The signal to Russia may be clear, but the contradictory approach of sustaining an oil price cap while effectively targeting the lawful trades that support it have left industry officials privately fuming.

“We’re left scratching our heads trying to work out what we’re supposed to be doing,” said said Mike Salthouse, head of external affairs at the P&I club NorthStandard.

“It increasingly difficult to see how lawful Russian oil trades can take place and puts an impossible burden on industry," he continued.

While the official line from the UK Treasury remains that the government intends to “disrupt circumvention of the cap, take enforcement action where appropriate, and support increased industry compliance”, the call from industry officials is now to scrap the price cap altogether.

“We think the oil cap has to be redundant,” said another senior figure within the UK insurance market who is also routinely consulted by the government.

“Given that the political view has changed from ensuring supply to non-G20 countries to blocking completely, we need to see that reflected in government policy,” he continued.

The widespread preference from within industry compliance teams is that a simple prohibition on Russian oil and products, akin to the model used by the US primary sanctions against Iran, would be easier to comply with than the present highly complex network of overlapping restrictions.

“Historically we have supported price cap trades because we believed governments wanted us to do so. It is now totally unclear what governments actually want industry to do,” said Salthouse.

“Are we supposed to be supporting the oil price cap or not? Because I genuinely don’t know right now”.