EU Price Cap on Russian Oil Should Be Used Widely, Cyprus Says

Georgios Georgiou and Paul Tugwell
·4 min read
5

(Bloomberg) -- Cyprus said a European Union price cap on Russia’s oil exports is prompting some tankers to flee the bloc for third countries and called for more pressure on other maritime nations to comply with the regime.

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“Cyprus is not against the sanctions, but wants to make sure they’re effective, uniformly applied and to the greatest extent possible flag-neutral,” Vassilios Demetriades, the shipping deputy minister, said in an interview in Limassol, the country’s largest port.

Demetriades is in charge of his portfolio, with the deputy title a reflection of a constraint on the number of ministries allowed by Cyprus’s constitution.

As part of its sanctions regime, the EU and the Group of Seven banned maritime services for Russian oil, including insurance, brokerage and, crucially, the European-based tanker fleet including ships owned in Cyprus. These restrictions won’t apply if oil is bought at or below a price cap on Russian oil of $60 a barrel set by the coalition.

The tanker fleet of EU and G-7 members accounts for only 17.4% of the global fleet. For the sanctions to be effective and to keep a level playing field for EU shipping, it’s important to convince other maritime nations such as Panama, Liberia and the Marshall Islands to follow them, Demetriades said, adding that sanctions would then apply to over 50% of the world’s oil tankers.

“This would also send a message to shipowners — please don’t de-flag — as irrespective of where you go, you will face the provisions of the sanctions,” he said.

Deletions from the EU fleet are currently inevitable and Cyprus has seen around 20 tankers de-flag from its registry since Oct. 6, or 20% of total tankers, accounting for 1 million gross tons, Demetriades said.

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When the EU ban on imports of Russian crude by sea came into force on Dec. 5, it effectively closed off its closest oil market, which took in roughly half of Moscow’s supplies at the start of the year. The UK and EU also introduced a ban on maritime services for the transport of Russian oil, including to third countries.

Cyprus, strategically located at the crossroads of Europe, Asia and Africa at the intersection of international and regional shipping lanes, is the world’s third-largest ship management center and accounts for over one fifth of the global third-party managed fleet. Ships flying the country’s flag represent the 11th-biggest fleet globally and the third-largest in the European Union after Greece and Malta. The shipping industry accounts for around 7% of total Cypriot economic output.

Cyprus has pressed at an EU level for ways to help keep vessels under European control after the oil price cap and the European Commission will announce appropriate support measures by Feb. 5 to attempt to maintain the bloc’s existing fleet or to attract ships back to the EU registry.

“Under current circumstances, the competitiveness of the EU fleet is challenged,” he said.

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Aid will not be in the form of funds, a lump sum or anything with budgetary implications, but Cyprus would like to see a commitment to maintaining existing state-aid guidelines for maritime transport to ensure more stability. Shipping should also have a more prominent role in the external relations of Europe, Demetriades said.

This could be through free-trade or EU partner agreements where the bloc tries to open opportunities for EU shipping operators in third countries. “It should not just be about making shipping greener or safer but how to keep the sector in Europe, by opening more opportunities for EU shipowners,” he said.

Cyprus is very strict on sanctions and will in work in every way to make them effective but “we need to recognize that EU registries are losing fleet because they follow the sanctions and we don’t want to see other nations branding themselves as sanctions neutral — saying come to us — and this is happening,” Demetriades said.

Green Shipping

Keeping vessels under EU control is also necessary as part of the effort to decarbonize shipping and as the EU tries to influence the sector elsewhere in the world, he said.

Cyprus is the only EU member state that has approved green tax incentives as part of its already EU-approved tonnage tax system. These reward ship operators according to clear criteria, who demonstrate meaningful environmental performance beyond their EU or international legal obligations, with a reduction in their tonnage tax of as much as 30%, the minister said.

There has been an increase in the number of shipping and maritime-related companies opening offices in Cyprus in recent years, many attracted by the tonnage tax system first introduced in 2010 that allows vessel owners, managers and charterers to pay tax on the carrying capacity of a ship rather than on the income it generates. The measure also applies to owners of foreign-flag vessels and charters.

“What is important is to send a political message to Russia,” Demetriades said.

--With assistance from Sotiris Nikas.

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