As the Russian-Ukrainian conflict began to lead to attacks on merchant ships sailing through the Black Sea, the scene of global trade and commodity markets that are most worried about appears to be emerging – at least three merchant ships have been hit since the outbreak of war between Russia and Ukraine on Thursday. This has led insurers to either no longer provide insurance for ships sailing into the Black Sea or to demand huge premiums.
Single-day rates for Black Sea to Mediterranean tankers surged more than $90,000 on Friday, according to data from the Baltic Exchange in London. Tanker rates for the TD6 Black Sea to Mediterranean route have now soared to $90,752 to $107,382 per day, the highest level since April 2020.
This complicates the local energy and food trading and shipping markets. At a time when there are concerns about the risk of sanctions on the purchase of Russian crude oil, the Black Sea, which is reduced to a high-risk zone, is further "throwing a rat trap" for those who are already cautious about trading with Russia. Many traders said that commodities from Russia should eventually continue to flow into the market, but this caution is likely to continue to emerge in the short term, and the situation is changing rapidly.
Fearnley A/S tanker broker Harvor Ellefsen said, "I have been a shipbroker for more than 30 years, but I have not seen such a chaotic situation, I only hope that the situation on the ground can be resolved as peacefully as possible." ”
Shipping industry sources show that insurers have reason to be careful, with at least three merchant ships reportedly damaged in the clashes that followed the outbreak of fighting. Cargill Inc. on Thursday A chartered boat was hit while sailing in Ukrainian waters. The company said the ship was empty at the time of the incident and had been taken to safety.
On Friday, a Moldovan-flagged chemical transport ship called Millennial Spirit was hit by a shell in the Black Sea. A third attack on a merchant ship followed shortly thereafter, when namura Queen was hit by a rocket off the coast of Ukraine.
Munro Anderson, founding partner at security consultancy Dryad Global, said, "We've seen some contingencies where ships have been hit. Any ship docked in Ukrainian waters should have left long ago, and this is a war zone — we've said it for 48 hours. Any vessel in Ukrainian waters needs to leave immediately, make a clear broadcast on the AIS, articulate their intentions. ”
What does it mean for the Black Sea to become a high-risk zone?
For global traders in energy, agricultural products and metals, the Black Sea is undoubtedly a vital region. As the Russian-Ukrainian conflict unfolds, this major artery of commodity shipping, located at the crossroads of Europe and Asia, has also attracted the attention of the world.
The Black Sea is connected to the Mediterranean Sea via the Turkish Strait. The danube and dnieper rivers, important rivers flowing into the Black Sea. In addition to Russia and Ukraine, the coastal states include Turkey, Bulgaria, Romania and Georgia.
The importance of the Black Sea is self-evident for local and global trade – crude and refined products from Russia, Azerbaijan and Kazakhstan are exported through terminals on the eastern edge of the Black Sea; countries on the western edge of the Black Sea rely on ships to transport crude oil imports to meet their energy needs; as one of the world's granaries, the region supplies tens of millions of tons of grain and vegetable oil from ports every year, and Ukraine and Russia together account for more than a quarter of global wheat trade and about one-fifth of corn trade Ukraine is also an important steel producer in Europe.
Here is the impact of Black Sea transport on the import and export of major local commodities:
(1) Crude oil exports
If the Black Sea route is in danger, it will affect more than just Russian crude oil exports. The chart below shows the three major oil export terminals on the east coast of the Black Sea from Russia to Georgia (these three terminals handle about 1.8 million barrels of crude oil exports per day):
In fact, if there is a disruption in the transportation of these export facilities, most of the crude oil exports at risk will not come from Russia, but from the far east – ship tracking data monitored by Bloomberg shows that exporters in Kazakhstan will suffer the most if the shipment of tankers in the Black Sea is disrupted.
(2) Crude oil imports
Both Romania and Bulgaria import crude oil through terminals along the Black Sea coast. About 200,000 barrels of oil cross the Black Sea from east to west every day, and more is imported from the Mediterranean Sea through the Bosphorus.
Refineries from Novorossiysk in Russia to Burgas in Bulgaria regularly trade Ural crude, and refineries in Burgas occasionally accept cargo from Siberian light and CPC blends. Romania, on the other hand, continues to import Ural and Siberian light crude oil, and intermittently imports CPC blended crude oil. The crude oil is either processed at midia's coastal refineries or transported by pipeline from Constanta to inland plants.
(3) Export of refined oil products
Refined petroleum products are also exported through terminals on the east coast of the Black Sea. A pipeline from the Volga refinery will transport Russian gas to the port of Novorossiysk for export. The port will also undertake the export of fuel oil and naphtha. Further south, the port of Tuapsch also exports a large number of refined products, including gasoline, fuel oil, naphtha, vacuum gasoline and marine diesel.
Russia also operates a number of smaller oil terminals further north, including Taman and Kafkaz, both close to the Kerch Strait, which connects the Black Sea and the Sea of Azov. Taman exports fuel oil, vacuum gasoline and liquefied petroleum gas, as well as vegetable oil, grains, fertilizers and sulfur. Several small terminals in the Sea of Azov also carry refined oil products.
In Georgia, the Azerbaijan State Oil Company (SOCAR) has a terminal in Kulevi, from where it can transport a range of refined products, including diesel and heavy oil transported by rail. Refined products are also shipped from Batumi in southern Georgia. Coastal refineries in Bulgaria and Romania also export sporadically refined products.
(4) Export of agricultural products
Together, Ukraine and Russia account for more than a quarter of global wheat exports, nearly a fifth of maize trade and most of sunflower oil exports. Fertile soils have helped Ukraine become the world's second-largest exporter of cereals, and neighboring Romania and Bulgaria are increasingly becoming important global crop traders.
The produce is then transported by truck, rail and barge to ports in Asia, Africa and the European Union. According to the research institute Ukr AgroConsult, the southwestern Ukrainian ports of Odessa, Kirovgrad, Nikolayev and Chernomorsk cover nearly 80 percent of Ukraine's grain exports.
According to an export union, with the closure of Ukrainian ports and the suspension of russian grain trading, local shipments are now coming to a standstill. On Thursday, shipping in the Sea of Azov was suspended and more than 150 vessels were stranded. Consultancy SoveCon estimates that the two countries still have about 13.5 million tonnes of wheat and 16 million tonnes of maize to transport this season. Crop-importing countries such as Indonesia and Tunisia are already considering alternative origins, as far away as Uruguay and India, as well as other European countries.
(5) Export of steel and metal
Ukrainian steel accounts for about a tenth of European imports, so any disruption to steel mill production or shipments would tighten the continent's already tight market and keep prices high after reaching record levels last year.
Ukraine's major steel producers include Metinvest BV, which has factories in the industrial heart of eastern Ukraine, including sites along the Dnieper River and two main plants in Mariupol. European heavyweight steel mill ArcelorMittal owns the largest steel plant in Ukraine, located in the central city of Krivilikh. Ferrexpo Plc is the world's third-largest iron ore pellet manufacturer, with all of its operations based in Ukraine. Seamless tube maker Interpipe also has a factory in eastern Dnipro.
According to the Ukrainian Port Authority, about 60 percent of Ukraine's maritime exports of ferrous metals are exported through Black Sea ports such as Odessa, Kirovgrad, Nikolayev and Chernomorsk, and about a fifth from Mariupol.