"In general terms we would expect exclusions for energy business," says David Breen, portfolio manager for natural resources at Swiss-based energy and infrastructure insurer Infrassure. "It's a question of definitions."
The eastern European country is host to mining industry and other energy exposures in addition to the gas pipelines running east to west.
"There is coal mining exposure in Ukraine, and coal-fired power plants in Ukraine. During Soviet times these assets were insured by the state and by the local market; it is only that they have begun to be insured internationally in the past few years," says Cornelia Iacobacci, head for mining industry underwriting at Infrassure.
"I would think on energy property business, you would always expect to see war or terrorism exclusions, especially in this part of the world," she adds.
War and terrorism underwriters have more to fear, then. However, so far material losses have not yet materialised. However, anonymous militants, evidently pro-Rusian but wearing no national marks on their uniforms, have already moved in on at least one major Crimean gas installation.
"There have been no losses so far, so it's still a non-event. It's still too early to say. Our main concern for now is actually the currency
The Russian majority populated Crimea region – home to Moscow's strategic naval base at Sevastopol, leased from Ukraine – is poised to vote in a referendum this Sunday (March 16) on whether to secede and join the Russian federation.
Ukraine's national government in Kiev opposes the referendum and any attempt to carve up the country. Ukraine's acting President, Oleksander Turchinov announced on Tuesday that a new national guard would be formed in response to any Russian attempt to annex Crimea.
“Politically speaking, there is little stability at the moment and the country is struggling with an economic crisis. Further action from Russia could therefore lead to a revolt and perhaps even civil war," says Maarten-Jan Bakkum, senior emerging market strategist at ING Investment Management.
Russian President Vladimir Putin has claimed to be acting in the interests of Russian "compatriots" in the region. Russian energy company Gazprom also made a statement on March 7, claiming that Ukraine is overdue on February payments for gas supplies from Russia to the country. Gazprom said Ukraine owes it debts of $1.529bn (£920bn).
Internationally, the US, UK, the European Union and the G7 block of countries have all voiced condemnation of any Russian attempt by to annex the Crimea or further interfere with Ukrainian sovereignty.
“Russia has now admitted that it has occupied a strategic position in the Crimea," says Bakkum. "So Russia is jeopardising its relationship with the West and focusing purely on military interests, even at the risk of economic consequences."
Insurance broker Marsh said in a briefing this week that insurers' fears over political unrest and country credit ratings in Ukraine, and potential international sanctions against Russia, have caused some to stop underwriting political risk insurance in both countries.
Marsh has advised underwriters to review policies and clearly understand their limits, sublimits, deductibles, loss-reporting requirements, covered perils, and other restrictions.
"The current situation in Russia and Ukraine is extremely fluid," said Evan Freely, head of Marsh’s global credit and political risk practice. "Companies with interests in the region face the potential for damage to assets through political violence and possible broader expropriation measures or sanctions against foreign interests in Russia should sanctions be imposed against the country.
"This is in addition to the potential for payment delays on trade payment obligations due from customers, especially those in Ukraine," he added.
If the situation does escalate into conflict – whether at the hands of terrorists, militants in unmarked uniforms, or war between two sovereign nations – energy is at the core of the assets at stake and the potential consequences.
“If things were to escalate, there would be an impact on the West; primarily due to the consequential rise in oil and gas prices. For European countries, Russia is an important party in the energy market and a lot of gas comes to Europe via Ukraine. Germany and the Netherlands also have huge interests in Russia," says Bakkum.
“If the situation escalates, oil prices could rise, as could gas prices. Russia has threatened to cut off the gas supply before and that could happen again now. Naturally, this situation is undesirable, especially as the economic recovery is still so fragile. After all, in the worst-case scenario, the economic recovery could falter as a result of higher energy costs,” he added.
Marsh noted that because Russia is the political risk and structured credit market’s largest country exposure, if a Ukrainian conflict results in large-scale insured damage, global premiums and insurance capacity for those lines could be hit. The broker advised companies to communicate with their insurers regarding their customers’ ability to pay as well as the insurer’s underwriting strategy.
"In the meantime, companies seeking to conduct new business in Russia and Ukraine will encounter difficulties obtaining coverage. No new political risk or trade coverage is being written in Ukraine," said the broker.
"Some insurers are willing to underwrite Russian deals and may honor non-binding quotes on new business. However, if a political risk insurance policy is quoted, it is likely that organizations will experience delays before binding due to increased underwriting scrutiny," said Marsh.
The ongoing sanctions situation could further impact underwriting, as well as being subject to further political and diplomatic developments.
"The European Union and the United States have recently issued new economic sanctions that may affect businesses with interests in Ukraine," said Tim Holt, head of intelligence at Alert: 24, a service from Special Contingency Risks, a risk and crisis management consultancy owned by broker Willis.
The Council of the EU has already adopted sanctions focused on freezing and recovering misappropriated Ukrainian state funds. However the sanctions were restricted to only 18 individuals deemed to be guilty of misappropriating Ukrainian assets or of human rights violations.
US President Obama signed an executive order with potentially broader sanctions ramifications, in response to attempts to subvert of Ukrainian governmental authority within the Crimea. However, no individuals or entities have been specifically targeted so far under the order.
"The Order allows the US to sanction any individual or entity that is responsible for or complicit in actions or policies that undermine democratic processes or institutions in Ukraine or that threaten the peace, security, stability, sovereignty, or territorial integrity of Ukraine," said an Alert: 24 note.
"Risk managers are advised to assess their business operations and relationships in Ukraine in light of increasing political sensitivity and the risk of enforcement action," said Holt. "At the very least companies should be screening all third-parties to ensure they aren’t engaged in transactions with sanctioned individuals or companies owned or operated by them."
By David Benyon - firstname.lastname@example.org