Embargo risk
The risk that a general trade ban, decided by the exporter's state or the buyer's, prevents performance of a contract; it is covered as political risk but never without limit against the insurer's own state.
An embargo is a general prohibition, decided by a state or an international organization, on exporting to or importing from a country certain categories of goods, or all of them. Unlike license cancellation, which targets one transaction, an embargo hits an entire trade flow and affects every contract in progress at once. For insurance, the result is a risk that is correlated by construction: an embargo triggers simultaneous losses for every insured exposed to the same country. The risk is covered in contract frustration and export credit policies, with two underwriting limits. The first concerns the origin of the measure: an embargo decided by the insured's own country, for example as a sanction, is often covered by public agencies, but the private market treats it cautiously because it stems from a foreseeable decision in its own political environment. The second concerns accumulation: underwriters cap their commitments per country, precisely because a single embargo can consume all the capacity allocated to one destination.
On August 7, 2014, Russia banned imports of most agricultural and food products from the European Union in response to European sanctions. The EU exports affected amounted to about 5.1 billion euros a year, and ongoing contracts for fruit, vegetables, meat and dairy became impossible to perform overnight.
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