19 September 2024 POTEN & PARTNERS
Will Western owners re-enter the Russian oil trades? The Russian oil trade after the attack on Ukraine and its impact on the tanker market is difficult to analyze because there are so many moving parts (some of which are hidden as well …). On the one hand, there are major disruptions in trade flows, which have been, in general, positive for the freight market. On the other hand, we have seen significant changes in the fleet that is servicing the Russian trade. The rapid growth of the so-called “dark fleet”, comprised of tankers that are able to side-step certain Western sanctions, has negated some of the positive dynamics for the tanker market. Because of the way some of the sanctions are structured, the level of oil prices is having an outsized impact on the Russian oil trade. Oil prices have declined significantly since the summer and if these price levels are maintained (or go even lower), there could be implications for the tanker market.
When Russia invaded Ukraine in February 2022, many Western (and some Asian) countries immediately signaled their disapproval by reducing or stopping imports of crude oil and refined products, while simultaneously starting to work on sanctions. Ultimately, many of these sanctions focused on the energy sector, since this was (and remains to this day) the major source of income for the Kremlin. The impact on the tanker market of the sanctions against Russia has been mixed. Initially, freight markets received a major boost. Western sanctions scrambled global trade flows as Russian oil needed to travel much longer distances, lifting ton-mile demand. This impact is still being felt. However, the results of implementing “price caps” for crude oil (in December 2022) and petroleum products (in February 2023) are less clear cut.
These price caps, which were implemented by the EU, along with the G7 countries and Australia, restrict the use of Western shipping services if prices for Russian oil exceeded a certain price cap ($60/barrel for crude oil). The crude oil price cap, which came into effect on 5 December 2022, initially had a limited impact, because Urals (the main Russian export grade) mostly traded below the $60 price cap until the summer of 2023.
This meant that Western service providers, including shipowners, P&I clubs and insurance companies were allowed to continue to service Russian export trades, all-the-while keeping a close eye on oil price developments. Most publicly trade shipping companies left the Russian trade, but many private owners continued to move Russian barrels, taking advantage of the opportunity to receive premium earnings.
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