LMA advises members to review Russian oil business in response to changes in the Oil Price Cap regime
Effective 02 September for the UK and 03 September for the EU, both regimes are reducing the price cap to US$47.60 per barrel. The US is presently not following suit so the price for US parties remains 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 initial change will include:
• For the UK: a 45-day wind-down period ending on 17 October 2025 for contracts entered before 02 September 2025.
• For the EU: a 90-day run-off until 18 October 2025 for contracts concluded before 20 July 2025.
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 standard LMA oil price cap clauses were drafted with the expectation that the oil price cap coalition would set the same price. They state: "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, 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. However, this interpretation remains untested.
Arabella continued: “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 advises any underwriting entity with an exposure to Russian oil, including hull, cargo, political risk, P&I and liability or reinsurance, that they should take steps to protect themselves appropriately. This would include reviewing any relevant risks they currently participate in which have US insureds or 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.
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