The Daily View: If the cap fits

THE oil price cap was either an elegant compromise or a contradictory time bomb, depending on your geographic, political or professional position.

The desire to impose a price cap on imports of Russian oil was intended to limit the Kremlin’s revenues without affecting the number of barrels sold.

Joe Biden was understandably not keen to see Russian oil exports collapse, lest prices on American forecourts surge.

Donald Trump’s policy towards the Kremlin is more complex and the political mood music has changed, but with the world facing an oil glut next year the prospect of volumes declining are less of a concern in his calculations.

So where does that leave the oil price cap?

Well, for shipowners, it means they are caught in a bind.

The legislation that not only allows, but previously encouraged them to keep Russian oil flowing, is targeting them as supporters of Russian energy revenues.

While the obvious answer would be to exit the trade and forego the rates, it is not that simple when it comes to contracts that were signed well before Russia’s economic exclusions were imposed.

That is a conundrum that has long left the gas players with a problem. The current plight of George Prokopiou, who is trying to remove three of his LNG carriers from the designation list in the UK, should serve as an instructive warning to others.

Until such trades are made unlawful there are few good routes open to shipping to extract themselves from contracts without exposing themselves to very large claims in damages.

Meanwhile, the legislation that says what they are doing is lawful simultaneously contains a clause that allows them to be sanctioned.

The UK has now said it will ban maritime services (read insurance and finance) supporting Russian LNG, but not until 2026 and then through a phased approach.

Germany, meanwhile, has started signalling that it might invoke “force majeure” to allow domestic players to exit their Yamal LNG contracts.

But until there is some clarity from governments, shipping is at risk.

There are many with investments sunk into long-term deals who will not relish the shutters coming down and an outright ban on Russian energy, but clarity is now required.

If Russian oil and gas is now genuinely “off the market”, as the UK Chancellor recently put it, then the oil price cap needs to be scrapped.

It no longer serves the purpose it was designed to achieve and only creates untenable legal risk for shipping, which is once again caught in the middle of confused political thinking when it comes to sanctions.

Richard Meade
Editor-in-chief, Lloyd’s List

Click here to view the latest Lloyd’s List Daily Briefing