Banning Russia from the Marine Insurance Market May Amplify Demand for Gas Products

Russia's central bank is preparing measures in an event of further sanctions. In an event the Moscow Exchange and the National Clearing Centre come under sanctions, the central bank wishes to assure USDRUB exchange rate can be managed.

In a statement, the Bank of Russia wrote the following: “To ensure the protection of clients and the smooth operation of the financial system, the Bank of Russia is carrying out modelling of various scenarios with market participants and infrastructure organizations.”

The Swiss Franc (CHF) was already suspended from trading against the Ruble and US Dollar by the Moscow Exchange. The Japanese yen (JPY) will be suspended from trading by the exchange from 8 August 2022.

CHF and JPY are currencies that often benefit from safe-haven flows.

Gazprom Gas Supply Reduction and Maritime Insurance

Gazprom reduced its gas supply to Europe last week, the Nord Stream pipe is only delivering 20% of its capacity. Over the weekend Gazprom announced it has suspended its gas supply to Latvia, which uses gas for 27% of its energy.

The EU is attempting to increase its gas imports including liquified natural gas (LNG) from other regions such as the US, Qatar and Norway. As opposed to crude oil, natural gas is still trading near its recent highs.

The plan to ban Russia from Lloyds of London maritime insurance market is being delayed. Banning Russia from maritime insurance means limiting Russia's access to the tanker fleet for its oil exports.

However, the Biden administration expressed its discontent with the move. As the United States is suffering from high inflation, such actions may kick energy prices higher, which may sustain the current inflation despite the Fed's actions (rate hikes).

The UK will only forbid vessels that carry Russian crude oil to the country from the end of the year. The EU insurance ban was effective as of 4 June, however, existing contracts will remain intact until the end of 2022.

Rosneft Excluded？

European companies will not be barred from paying Rosneft for purchasing or transporting crude oil products to countries outside the EU. This is to ensure the global energy supply will not be severely impacted.

The US has been attempting to convince the EU that Russian oil will be delivered to other countries (outside the EU and US) as long as the payment is below the market price. The US pushes to lower gasoline prices before the midterm elections held in November. Capping oil prices first before a full maritime insurance ban (at the end of 2022) is among the US priorities.

Russia has increased its gas shipments to China. The Power of Siberia, a pipeline that has been used to transport gas to Europe will also be connected to China, allowing the Russian government to diversify to who it sells its natural resources to.

China has been acquiring Russian pipeline gas and less LNG. Due to covid-19 lockdowns, the demand for LNG has been low. China's demand for LNG is expected to remain low throughout September.

However, as soon as China's demand for LNG increases it may begin competing with Europe for LNG imports.

EU members have reached a political agreement to voluntarily reduce natural gas demand by 15% in the upcoming winter. Nevertheless, the Council regulation said it is possible a 'Union alert' will be triggered (security of supply), which means the 15% gas reduction will be mandatory.

According to ICE, the ICE UK OCM Gas Spot saw the highest average daily volume (ADV) since 2014.

Expanding Natural Gas Products

CFD brokers should consider introducing natural gas products including ETFs. While the focus has been on green energy (Saxo bank introduced its renewable energy basket earlier this year), as we near December (when the maritime insurance ban may be enforced) the volatility may increase.

The Forex market volumes often increase in tandem with risk events. While it is still early to determine how the tension between Russia and Europe will unravel, offering a spectrum of gas products to cater investors' demand may be the appropriate step brokers should take.