Russia’s war on Ukraine triggers ‘earthquake’ in global shipping and trade industry
Russia’s seven-day-old invasion of Ukraine has triggered an ‘earthquake’ in the shipping and trade industry, disrupting routes, diverting merchant ships and driving up costs as sanctions Western forces against Moscow are starting to bite, according to the founder of Israel’s maritime intelligence company Windward.
Windward, which relies on artificial intelligence and machine learning to solve shipping complexities for customers, has been tracking the effects of the conflict on the global transportation ecosystem since the crisis began last Thursday. In a report on Wednesday, the company said there had been a sharp drop in transit activity in the Bosphorus Strait (also known as the Istanbul Strait), which connects to the Black Sea. and to the Sea of Azov where Ukraine gets its maritime access, and a sudden spike of ships changing their destination transmitted by AIS (automatic identification system) from Ukrainian ports to Constanta, Romania, and Istanbul, Turkey .
Russian and Ukrainian ports on the Black Sea are major export centers for wheat, corn and crude oil. Russia is the world’s largest supplier of wheat, and Ukraine accounts for about 12% of global wheat supply and about 16% of global corn exports, according to the US Department of Agriculture. Together, the two countries also account for 80% of sunflower oil, which is used in food processing.
According to the Windward report, insurers have increased costs by up to 5% to cover merchant ships crossing the Black Sea, adding to already high freight rates in the region and further affecting affected supply chain complexes. by the pandemic.
Western sanctions against Russia have also taken their toll, massively increasing the risk for shipping companies and financial institutions working with Russian entities, and sending shockwaves through trade finance, a global system for financing trade. import and export of goods.
The current crisis “is nothing like an earthquake,” Ami Daniel, CEO and co-founder of Windward, told The Times of Israel in a telephone interview Wednesday.
“The world is polarized. We are witnessing a new generation of moral sanctions. We have seen oil prices soar above $100 a barrel, we have seen Russian oil become almost toxic, and Russian ships become toxic,” he said.
Oil prices continued to climb on Wednesday and briefly rose above $110 a barrel, as investors worried about the Russian invasion.
Russia is a vital supplier of oil, natural gas and metals, and rising prices for these commodities are sure to inflict economic damage around the world. Europe depends on Russia for almost 40% of its natural gas and 25% of its oil.
Adding to supply constraints, some oil buyers in recent days have shunned Russian crude, fearing that if sanctions were imposed on Russian oil or gas, their purchased oil could be rendered unusable.
Daniel estimated that there were some 30 million barrels of Russian oil currently in transit “and no one will receive them, they have not been offloaded at any port” for fear of being exposed to sanctions violations.
The United States censored a number of major Russian financial institutions and companies in various sectors, including the country’s largest shipowner, Sovcomflot (SCF Group), a state-owned company specializing in the transport of oil, petroleum products and of liquefied natural gas.
Sovcomflot directly owns 229 tankers, Windward research shows, but some 2,000 of the roughly 44,000 freighters and tankers operating globally over the past two years are owned by Russian-registered companies and further sanctions against other companies may be imposed at any time. , said Daniel. Western companies will have to consider renegotiating every deal that includes a Russian entity, according to the report co-authored by Daniel.
These 2,000 ships “have become toxic, and nobody wants to touch them because nobody knows what will happen. OFAC [the US Department of the Treasury’s Office of Foreign Assets Control]in one of his announcements, very elegantly said “please do not sign any contract…for 14 days with any Russian-related entity,” Daniel said, adding that this led to “completely shut down everything and anything Russian”. .”
Amy Myers Jaffe, research professor and managing director of the Climate Policy Lab at Tufts University, told The Associated Press that “cargoes have already been rejected by European refiners in the market, because people are afraid that sanctions are coming, so they don’t.” I don’t want to be caught with cargo they can’t resell.
Russia’s actions in Ukraine have made its crude oil “one of the most toxic barrels in the market”, Louise Dickson, senior oil market analyst at Rystad Energy, told the news agency.
Sanctions impact trade finance
On Tuesday, the UK said it was banning any ships with Russian connections from entering its ports as the country stepped up efforts to isolate Russian President Vladimir Putin and his government following the invasion of Ukraine.
Announcing the blanket ban in a tweet, UK Transport Secretary Grant Shapps encouraged other countries to ban vessels linked to Russia from using their ports. “We have just become the first nation to pass legislation involving a complete ban on all ships with any connection to Russia from entering UK ports,” Shapps said.
The decision came a day after Scottish First Minister Nicola Sturgeon urged Shapps to prevent a Russian tanker from docking in the Orkney Islands, where the vessel was due to arrive on Tuesday.
Earlier this week, Turkey decided to restrict access to Russian warships through the Bosphorus and Dardanelles straits.
Over the past day, Daniel noted, the world’s three largest shipping companies – Danish shipping giant Maersk, Swiss company MSC and French company CMA CGM – suspended all non-essential deliveries to Russia. This meant that “28% of container capacity was withdrawn from Russia; it’s an earthquake,” he explained.
The sanctions also have a significant impact on trade finance, the system by which imports and exports of goods are financed through direct payments or lines of credit by financial institutions.
“By cutting off access to US and European financial markets, Russian companies will be unable to fund the majority of global transactions because payment for those exports will be halted by US and European regulators,” the report said.
With major Russian banks like Sberbank, VTB Bank and Promzvyazbank (PSB) blacklisted by the US, around “5-8% of all trade finance capacity has been pulled from the market, as they have worked with everything the world,” Daniel said. .
And with Ukraine completely closed to exports, “this is creating a crisis in the wheat market…no one is going to take Russian wheat right now,” he continued, noting that big companies have joined governments to sanction Russia.
This week, multinationals such as Boeing, Airbus, Exxon, Apple, Ford and Nike joined technology companies such as Meta (Facebook), Google and Microsoft in suspending operations or restricting access or service in Russia following its aggression in Ukraine.
Russia is a superpower “embedded in trade, finance, maritime trade – all aspects of the global economy”, he said.
“We have never seen this before, never in the history of economic sanctions. People have always done the minimum, not the maximum. They are doing the maximum now because of the horrible situation” in Ukraine, Daniel said.
Agencies contributed to this report.