Russia Sanctions Redraw Sea Routes, Separating East from West | Russo-Ukrainian War

Athens, Greece – Western sanctions punishing Russia for its invasion of Ukraine are reshaping global trade along political lines, defying geography and efficiency.

This new reality creates a boon for merchant shipping, but risks creating higher prices for European consumers and hunger for Africa.

The disturbance comes from the limitation of the Black Sea trade. Ukrainian ports were blocked by Russian land and sea sieges, preventing shipping. Ukrainian officials told the Reuters news agency that around 100 foreign-flagged ships were trapped in ports on March 11.

“They were loading or unloading when the war started,” shipowner Yiorgos Gourdomichalis told Al Jazeera. “The system simply shut down. There were no customs officers or harbor masters to process the boats.

The UN shipping watchdog, the International Maritime Organization, has voted to establish a safe corridor for crew evacuation, but stranded ships with skeleton crews will simply lose money until that they can be dislodged.

Active hazards also keep shipowners away.

Several merchant ships were damaged by missiles or mines at sea and one, the Estonian-owned Helt, sank on 3 March. Insurance rates are now very high.

“I’ve heard of insurance rates of $400,000 to $600,000 for a week… A normal rate might be closer to $80,000 to $120,000,” said Gourdomichalis, whose bulk carriers move away. of the region.

Last year, Ukraine produced almost 40% of the world’s sunflower oil, widely used in the food industry, 15% of its barley and 10% of its wheat and corn.

The Russian blockade means that Ukraine cannot currently export these goods and Europe is forced to look further.

Just as war risk affects trade with Ukraine, sanctions risk affects trade with Russia.

The United States imposed an embargo on Russian oil on March 10 and Europe is under pressure to follow suit. This creates both a decline in real demand for Russian oil and a psychological aversion to it.

“There is a potential stigma associated with Russian trades,” said a financial officer of a Piraeus-based tanker operator, who spoke on condition of anonymity.

“While some of these trades are still legal, the owners might not want to associate. US oil companies could ask them if their ships have done any recent Russian transactions, which could create a headache. Owners prefer to avoid it.

The bargain rates show how desperate Russia is to export its oil, according to Eva Tzima, head of research and valuations at Seaborne Shipbrokers, who said: “The rate for the Black Sea-Mediterranean Suezmax route was listed at around $16,000/day on February 24. [when war broke out]and managed to surpass $157,000/day as of March 1. »

The same negative psychology and political risk associated with Russian oil lowers demand for its coal and agricultural exports.

“Several importers avoid Russian grains and fertilizers despite the fact that these are not sanctioned exchanges,” Tzima said. “In this case, replacement shipments would come from France, the east coast of South America and the United States, and … importers will have to look to longer supplies.”

Changing Trade Routes

These longer routes cross the Pacific and the Atlantic – known as the return route.

“What plays favorably for us is Australia making up the shortfall to Europe, and that’s fantastic for us because Australia to Europe is a great journey,” Ziad said. Nakhleh, CEO of TEO Shipping, which operates dry bulk carriers.

Return shipping rates increased by 26% between February 24 and March 23 on a range of bulk carrier types.

“The backhaul was never $25,000,” Nakhleh said. “Before, it was $5,000 to $6,000 a day. Who in their right mind would buy coal from Australia for Europe? »

Committing vessels to this 30-40 day voyage takes them away from the market for long periods of time, reducing available capacity on other routes and increasing transport prices at all levels.

This realignment of trade is progressing day by day. Europe imported around a third of its natural gas from Russia last year and is keen to find alternative sources.

Germany reached a political agreement with Qatar on March 20 to purchase “long-term LNG supplies”. Separately, European Union leaders reached an agreement with US President Joe Biden on March 25 to increase deliveries of US liquefied natural gas (LNG) by 15 billion cubic meters this year, and by 50 billion additional cubic meters over the decade.

If this objective were achieved, the United States would supply around a fifth of European gas consumption. This will further increase LNG carrier rates, which in the first month of the war nearly tripled to over $70,000 a day.

Europe also aims to replace Russian oil and coal by the end of the decade, fueling long-haul trade for years to come.

Consumer hell?

It is not yet known what higher shipping rates will mean for consumers.

The astronomical rates paid for Russian oil are partly offset by the fact that Russia is cutting its oil by more than $30 a barrel to displace it.

Tzima thinks there will be a rebalancing.

“As major consuming countries like China and India increasingly turn to Russian oil which is now more competitively priced, a larger supply from the Middle East is becoming available to EU countries, limiting significant disruptions to oil trade,” she said.

(Al Jazeera)

This may not be true for all commodities.

Research from Braemar Shipbrokers suggests that Europe will face shortages of 700,000 barrels per day of marine diesel, in part due to reduced imports of refined products from Russia.

“Russia exports a lot of refined products, which tend to move on smaller vessels,” said a Piraeus-based tanker owner on condition of anonymity. “If you have crude oil transported on a large vessel, you can argue that Russia will end up selling to India and China instead of Europe. On smaller vessels, it is very expensive to hauling 20,000 tons of gasoline to Russia or China when the charter was originally for, say, Italy, because the cost per ton-mile becomes unnecessary Diesel is going to skyrocket this summer.

Europe may be rich enough to buy its way out of the crisis, but Africa is not, which risks creating additional security costs for Europe. The Executive Director of the United Nations World Food Programme, David Beasley recently warned of “starvation, destabilization and mass migration” unless the developed world raises billions of dollars to subsidize the rising cost of grain.

Backhaul charter rates for different vessel types: February 24 to March 23

Panamax medium

$24,204 – $29,450 (+22%)


$16,586 – $17,412 (+5%)


$26,567 – $33,171 (+25%)


$24,912 – $31,406 (+26%)