The Lloyd’s Market Association has urged insurers to review their exposure to Russian oil ahead of changes to the UK and EU Oil Price Cap regimes, which will lower the cap to US$47.60 per barrel in September.

The new limits take effect on 2nd September for the UK and 3rd September for the EU. In a first for the coalition, the US will not follow suit, keeping its cap at US$60 per barrel. The EU has also introduced a mechanism to reassess the cap every six months.

The UK will apply a 45-day wind-down ending 17th October for contracts entered before 2nd September. The EU will allow a 90-day run-off until 18th October for contracts concluded before 20 July.

Arabella Ramage, legal and regulatory director at the LMA, said: “This means that we will now have a situation where US parties will have a different price cap to comply with from the UK and EU, and the UK and EU will have slightly different transitional provisions until the changes now introduced take place.

“If a US insured or US lead market uses a US$60 oil price cap, the impact for EU or UK insurers could be that any standard sanctions clause in their policies is triggered.”

The LMA’s standard clauses were drafted on the basis that the coalition would set a single cap. They define it as “the price, or cap, set for the purchase or sale of the Russian Oil or the Russian Oil Product by the Price Cap Coalition as may be amended from time to time” and refer to the “relevant” price cap. This may allow insurers with several liability to apply the cap relevant to them, though the interpretation is untested.

Ramage added: “The divergence between the UK, EU and US approaches means in practice that UK/EU entities may not necessarily be able to follow a US lead on business involving Russian oil unless the US party adopts the UK/EU position on price cap and ensures that they can obtain the necessary supporting documentation to demonstrate compliance with UK/EU requirements.”

The LMA is advising underwriters with exposure to Russian oil – including hull, cargo, political risk, P&I and liability or reinsurance – to review relevant risks involving US insureds or US lead insurers, and ensure compliance before the new caps take effect. There is also the threat of significant US secondary sanctions on anyone dealing with Russian oil, including receiving ports and states.

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