HM Treasury confirmed on Thursday that the new legislation is the next step in the plan by the Group of Seven countries to impose a price cap on Russian crude oil exports.
The government said the legislation, effective from Dec. 5, would prevent countries from using the U.K.'s insurance, brokerage and shipping services to transport Russian oil unless it is bought at or below an oil price cap to be set by the Price Cap Coalition formed by the G-7 and Australia.
The level of the cap "will be set by the coalition in due course," the Treasury added.
The G-7 includes the U.S, Canada, Japan, Germany, France, Italy and the U.K. Britain started introducing a phased ban on Russian oil earlier this year.
"This new measure continues to turn the screws on Putin's war machine, making it even tougher for him to profiteer from his illegal war," Chancellor Jeremy Hunt said in a statement.
The measure is intended to allow countries to continue to have access to affordable oil, HM Treasury said.
The government said that insurance is one of the "key services" that enable the transportation of oil by sea, particularly protection and indemnity maritime insurance, which covers companies against risks such as oil spills.
The U.K. is a global leader in the market for protection and indemnity insurance that covers oil shipments, providing 60% of global coverage in the sector, according to the statement.
Lloyds of London, the insurance market, said it supported the G-7's efforts to build consensus on the insurance ban and added that it would work to implement all measures the U.K. government is putting in place.
"The major impact for Lloyd's and market participants will be ensuring that there is transparency across the tiers of the supply chain that the market chooses to cover" and that there are assurances that the terms of the proposed framework are being followed, a spokesperson said.
The European Commission has proposed expanding its sanctions against Russia in response to the Kremlin's war in Ukraine.
Soaring energy prices have been attributed to rising inflation and slowing growth around the world, the World Economic Forum, an international think tank, has said.
"We continue to see a clear and incremental expansion of the U.K. sanctions targeting Russia," Matthew Townsend, partner and co-head of the International Environmental, Climate and Regulatory Law Groups at Allen & Overy LLP, told Law360. "These are increasingly looking to cut off access to U.K. professional and other services which could facilitate the export of Russian oil."
Britain's new law will initially apply only to exports of raw oil before it is refined. But, from Feb. 5, it will be extended to cover energy products including gasoline and diesel, reflecting the European Union's own schedule.
The Treasury said it has also created a new team in the Office of Financial Sanctions Implementation to arrange the licensing and enforcement system for the oil price cap.
The ministry said in a statement that the team will work with the oil industry to "ensure readiness for the cap and monitor the level and impact of the cap."
But Townsend said it remains to be seen how effective the sanctions will be.
"There remain ready markets for Russian oil even if not in the U.K. and Europe," he said. "We are very close to Russia becoming one of the most sanctioned countries globally. This will be a true test of whether sanctions can succeed where diplomacy has failed."
The Treasury declined to comment further.
The announcement coincides with news that oil giant BP PLC made more than $8.2 billion in the second quarter of 2022 and ExxonMobil reported $19.7 of profits in the third quarter.
--Editing by Ed Harris.
Update: This story has been updated to add comment from Lloyd's of London.
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