Europe will ban insurance for Russian oil cargoes, dealing the strongest blow yet to Putin's war machine, according to report

The EU is trying to impose fresh sanctions on Russia. Image: Aapsky/Getty 

The UK and EU are planning to ban ships carrying Russian oil from getting insurance, according to reports, in what analysts are describing as the biggest blow yet to Moscow's efforts to fund its war in Ukraine.

According to the Financial Times, which cited British and European officials, ships carrying Russian oil will be unable to obtain insurance on the Lloyd's of London market under the arrangement.

The insurance prohibition will go into effect in six months,  the Wall Street Journal reported. The European Commission did not respond to a request for comment, and the UK government did not respond to an inquiry.

The move could result in a substantial decline in the transportation and sale of Russian oil, according to analysts. Lloyd's is a global hub for shipping insurance. Given the enormous value of oil shipments, insurance is essential.

The move could result in a sharp decline in the transportation and sale of Russian oil, according to analysts. Lloyd's is a global hub for shipping insurance. Given the enormous value of oil shipments, insurance is critical.

The EU banned insurance on Iranian oil as part of a wave of sanctions a decade ago, which led to importers avoiding the country's supplies.

In a note published Tuesday, Sassan Ghahramani of consultancy SGH Macro Advisers said, "The Western restriction on insuring vessels carrying Iranian oil was likely the single most effective move in taking a large part of the Islamic Republic's illicit oil exports off markets."

It's the sixth wave of sanctions imposed by the EU against Russia since President Vladimir Putin's forces invaded Ukraine in late February.

The EU's 27 members agreed on Tuesday on an embargo that would reduce Russian oil imports by 90% by the end of 2022. However, a leading economist believes that the insurance ban is a more powerful weapon.

"The EU oil embargo doesn't stop Russia from shipping its oil elsewhere, thus it doesn't stop Putin's money machine," Robin Brooks, the Institute for International Finance's chief economist, tweeted Tuesday.

"Only maritime insurance sanctions or an EU embargo on Greek oil tankers leaving Russia will do it."

The steps are likely to put more pressure on the oil market and increase economic misery in Western economies that are already dealing with high inflation.

Brent crude oil has risen by roughly 50% since the beginning of the year, owing primarily to the Ukraine conflict and the resulting sanctions. After the EU announced its import embargo on Tuesday, it jumped over $125 a barrel, but then returned to around $117 on Wednesday.

According to IEA data, Russia is the world's largest oil exporter and the second-largest crude oil exporter.

Despite the tough sanctions already in place, Putin has been able to escape a serious economic crisis because to a sharp rise in energy prices, which has boosted earnings from oil and gas exports.

"Lloyd's supports and continues focused on the delivery of a worldwide sanctions system against the Russian state, which sends an important message that Russia's invasion of a peaceful country is unacceptable," a spokeswoman for the company said in a statement.