Thursday, February 22, 2024

Why Denmark can’t “stop” the dark tankers – EJIL: Speak up!

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A dangerous proposal is on the table as sanctions officials seek answers on how to improve enforcement of Russia’s oil price cap. Coalition-driven caps are intended to achieve two apparently contradictory objectives. It is about limiting Russia’s ability to generate oil revenues that can be used to finance the war and preserving the world’s energy supplies. Rather than outright banning the promotion of Russian oil exports, the G7, EU, Norway, and Australia have adopted a system that sets artificially low prices for Russian oil transported by sea. The coalition seeks to implement this price cap by placing the burden of compliance on “maritime service providers” such as commodity traders, charter companies, ship owners and insurance companies. In effect, this requires private actors in the commercial chain to painstakingly track the prices of the underlying Russia-linked oil trades or exchanges. pro forma “Certificates” of compliance with direct business partners.

As spot interest rates on Russian oil rise above the ceiling, it becomes clear that these experimental regulatory efforts have so far failed to achieve their policy objectives. Rather, price caps are a bureaucratic headache, and legitimate industry players who are far removed from actual price information are forced to rely on compliance guarantees embedded in certificates or otherwise rely on Russia-related It will completely withdraw from oil trading. Marine insurance companies appear to be primarily choosing the latter option. To fill this commercial void and at the same time evade sanctions by using older tankers with manipulated tracking transmitters, concealed ownership structures, and alternative insurance policies, if any. The Dark Fleet has appeared.

A worrying ramification is that shadowy tankers with dubious insurance are loading oil at Russia’s Baltic ports and making their way to global markets through the international strait that separates mainland Denmark from Sweden. Ominously, some of it appears to be stuck in a berth off the coast of Skagen Harbor in northern Denmark. In response, the coalition is reportedly considering imposing a bolder role on Denmark to enforce price caps by inspecting Russian-connected tankers passing through the Denmark Strait. This short essay addresses this controversy by discussing the commercial maritime situation alongside the corresponding treaty-based framework governing the proposed Danish intervention. While the prospect of reviewing the implementation of price caps is a worthy discussion, they argue that the current implementation proposal is conceptually flawed.

insurance background

The main precondition for setting price caps is that maritime service providers under Allied jurisdiction are “best in class”, making it a useful tool for self-policing sanctions through compliance measures. be. One truth reflected in this characterization is the state of marine insurance offered by the world’s leading Protection and Indemnity (P&I) clubs. The International Group of P&I Clubs is an umbrella organization that unites 12 of the most reputable Shipowners’ Mutual Indemnity Associations, each member of which is based in an Allied country. In total, it covers more than 90% of tankers around the world. Seven clubs outside the UK (Britannia, London P&I, North Standard, Shipowners Mutual, Steamship Mutual, British P&I, West of England), two clubs in Norway (Gard and Skuld) and one club each within the EU. (Swedish Club), America (American Club), and Japan (Japan Club). These insurance restrictions, which explicitly refer to P&I clubs as ‘Tier 3’ entities subject to price cap certification requirements, have two practical consequences. First, international group P&I clubs are unlikely to deliberately insure vessels transporting Russian oil above price caps. This is the rationale behind widespread media reports that “non-Western” insurance could be used as a proxy for avoiding price caps. Second, even if a P&I club affiliated with an international group unwittingly covers vessels participating in non-compliant transactions, the certificates, P&I club rules, and the broader illegality doctrine Recovering claims when a vessel is scrapped can be complicated. There were casualties.

The prospect that oil tankers without adequate insurance may be regularly plying Europe’s coastlines is deeply worrying. However, commercial reality is more complex than public perception. P&I clubs cover a wide range of risks, including personal injury, salvage, shipwreck removal and environmental pollution. In fact, the International Group’s P&I Club is essentially linked to compulsory insurance under international conventions on marine pollution from ships, such as the Civil Liability Convention (CLC) of 1969 and 1992. In order to prove that a strictly liable shipowner has insurance that meets her CLC, the P&I Club will issue a ‘Blue Card’ to the State Authority (Flag State) indicating that a registered ship is insured. etc.). State authorities then issue insurance certificates based on the Blue Card, which can be loaded onto ships and given access to maritime infrastructure (ports and canals) around the world. In theory, this framework allows countries to check whether ships have adequate insurance to cover oil pollution liability affecting third parties. in front It engages in international voyages. Under the CLC, if another State Party questions whether the insurer named on the certificate is capable of meeting its treaty obligations, that State Party may request remedial consultations from the certifying State.

Nevertheless, even before the introduction of price caps, the International Maritime Organization (IMO) stated that Russia-related sanctions have resulted in the cancellation of coverage and the complication of insurance payments resulting in large-scale oil spills. issued guidance emphasizing that recovery may be difficult. The guidance recommends that countries should decertify P&I clubs when they receive notification that they have terminated their basic insurance, and to check whether Russian insurers are able to provide adequate cover. This suggests that verification measures should be taken. A recent advisory issued jointly by the Price Cap Coalition countries reflects similar concerns, stating that dark fleet vessels involved in Russian-linked oil trades may falsify certificates or “unknown, unverified” ‘sporadic or fraudulent insurance’, which could lead to incapacitation. To pay oil spill compensation claims. If, in fact, Russia or any other country is falsifying her certificate of adequacy of P&I coverage, this flagrant violation of the treaty-based framework is one of the biggest concerns. But can this concern be resolved by inspecting, intercepting, or even seizing ships?

Legality of intervention

Unconfirmed coalition proposals include Danish authorities physically engaging tankers connecting with Russia in or near the Denmark Strait, citing the need to inspect the CLC certificates of certain Russian-connecting vessels. ing. The concern is that vessels in the dark fleet may have insufficient P&I insurance to meet the requirements of the CLC Convention, or that vessels may be transporting oil in excess of price caps. In some cases, it may be subject to sanctions exclusion clauses or illegal act defenses. This intervention approach is legally problematic in several ways.

Although the Denmark Strait is narrow, it is an “international strait” that grants freedom of navigation to all ships under the 1857 Treaty of Copenhagen. Fast forward to the current legal position and this means that the regime of transit passage applies to the Straits. Under this regime, border states such as Denmark have very limited legislative and executive powers.

Denmark’s sole legislative authority in this strait is set out in Article 42 of the United Nations Convention on the Law of the Sea. Regarding marine pollution, the same article allows border states to require compliance with regulations based on the International Convention on the Prevention and Control of Ship-borne Pollution. As this is already an obligation for ships wishing to use the right of transit passage, there remains no substantive independent legislative power for countries bordering international straits, and there is no effective independent legislative authority left for states bordering international straits, and there is no provision for ships issued by a Union-based P&I club. Proof of insurance backed by Blue Card.

Regarding enforcement powers, as long as a ship is “continuously and expeditiously sailing” through the Denmark Strait, Denmark cannot “obstruct” or otherwise impede its progress. As reported, vessels anchored for long periods of time are beyond the scope of these free movement protections, and Denmark will probably be allowed to inspect vessels anchored within Skagen’s territorial waters. It turns out. These circumstances aside, Denmark’s enforcement powers are outlined in Article 233 of the United Nations Convention on the Law of the Sea, which states that if anti-pollution regulations are not complied with and there is a risk of serious damage to the marine environment in the Denmark Strait, Denmark will “Appropriate enforcement measures can be taken.” ” But this is a high standard that Denmark should establish. It takes more than a vague fear that a ship passing through the Denmark Strait might be carrying a fraudulent insurance policy. Also, for Denmark, the vessel is transporting oil in excess of the price cap, so an exclusion clause or illegality argument could establish a legal basis for the P&I club to refuse to pay the claim. It is not enough to be concerned. In return, Denmark will be restrained from intervening unless there is concrete and viable evidence that the vessel poses a serious threat of damage to the marine environment.

Freedom of navigation remains a starting point for transits through the Denmark Strait, including tankers loaded with Russian oil, in distinction from environmentally based black ship interference in port facilities reported in other parts of the world .

Proposal: A red herring released to influence the market?

Taken as a whole, Denmark’s proposal to enforce Russia’s oil price cap is mainly due to the fact that the Denmark Strait has a special status in international law, and that Denmark would require ships to have legal CLC certificates. While possible, it is likely to be illegal as Denmark’s prohibition and enforcement powers are limited. Intervene while the vessel is navigating the transit route to physically confirm this. Instead, they must rely on the national consultation framework already outlined in the Petroleum Pollution Convention.

More importantly, assuming that a particular vessel is found to have a fraudulent or inadequate insurance certificate when sailing through the Denmark Strait, what would be the next course of action for a NATO member state? However, it is highly provocative to illegally inspect, seize, interdict, and arrest commercial vessels connected to Russia carrying extremely valuable cargo. Retaliatory seizures of merchant ships have already occurred in connection with other geopolitical conflicts around the world. Creating a new wave on Scandinavian doorsteps is not a viable solution to the price cap problem.

Still, the mere threat of being searched and seized if an oil tanker carries a dubious insurance policy could send the market back into the P&I club of “Western” international groups, which are obliged to abide by price caps. There is definitely a possibility that there will be a connection. So in the end, a strategically, legally, and practically simple proposal might work — assuming, of course, that it is never actually implemented.

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