The Lloyd’s Market Association (LMA) has advised its member insurers to review their exposures to Russian oil in response to upcoming changes to the Oil Price Cap regime for the UK and EU.
The UK and EU reduced the price cap to US$47.60 per barrel effective September 2nd and 3rd, respectively, but the US diverged, with its price cap to remain at US$60 per barrel.
Additionally, the EU has introduced a flexible mechanism which allows it to reassess the price cap at six-month intervals.
The LMA advises any underwriting entity with an exposure to Russian oil, including hull, cargo, political risk, P&I and liability or reinsurance, to take steps to protect themselves appropriately.
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“This would include reviewing any relevant risks they currently participate in, which have US insureds or where there is a US lead insurer, where they cannot obtain sufficient assurance that there will be compliance with the UK/EU price cap by the time the new divergent price caps come into force. In the background, there is also a threat of significant US secondary sanctions on anyone dealing with Russian oil, including receiving ports and states,” explains the LMA.
In the UK, as explained by the LMA, there’s a 45-day wind-down period which ends October 17th, 2025, for contracts entered before the effective date. Whereas for the EU, it is a 90-day run-off until October 18th, 2025, for contracts concluded before July 20th, 2025.
Arabella Ramage, Legal and Regulatory Director, 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 standard LMA oil price cap clauses were drafted with the expectation that the oil price cap coalition would set the same price. The clauses sate: “Price Cap means 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 throughout to the “relevant” price cap.”
Therefore, explains the LMA, the clauses should be flexible enough that in a contract where insurers are severally liable, each insurer may be able to enforce the terms of the LMA oil price cap clause for the price cap that is relevant to it. The LMA notes, however, that this interpretation remains untested.
“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,” said Ramage.
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