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Ukraine's Warning to Russian Black Sea Shipping May Lead to Rate Increases
By Sea and Coast | 08/08/2023
The decision by Ukraine to target a Russian tanker near the Kerch Strait is likely to have financial implications for foreign-flag tankers engaged in transporting Russia's Black Sea crude exports. This attack has the potential to increase war risk insurance costs and potentially elevate freight rates for tankers operating in the region.
A Ukrainian drone boat reportedly struck and caused damage to a Russian product tanker named the Sig near the Kerch Strait. The vessel, which had been under U.S. sanctions since 2019, suffered damage below the pilothouse on the starboard side, resulting in superstructure damage and flooding in the engine room. Although the vessel didn't sink, salvage efforts were initiated promptly.
This incident could be viewed within the broader context of Ukraine's efforts to disrupt Russia's logistics chain to its occupied Kherson province, where Ukrainian forces are engaged in combat against entrenched Russian forces.
Furthermore, Ukraine has declared a "war risk area" encompassing anchorages and harbors of six Russian ports on the northeastern coast of the Black Sea. Notable among these ports is Novorossyisk, a key export loading point for Russian oil in the Black Sea region. These actions parallel Russian attempts to impede Ukrainian grain exports by targeting Ukrainian grain terminals and impacting port capacities.
Ukraine's Ministry of Defense justified its actions based on historical instances of Russia's use of Black Sea waters for armed operations against other nations. The ministry asserted that Russia has employed Ukrainian territorial waters to perpetrate acts of aggression since 1991.
As a result of these developments, the implications for foreign-flag shipping remain uncertain. Although initial reactions from Western shipowners and insurers appear subdued, oil analyst Viktor Katona predicts potential consequences for shipping Russian oil, particularly to India, with potential increases in freight rates by up to 50 percent due to the heightened Ukrainian threat. The attack's impact on around 2.5 million barrels per day of crude and product flows is of significant concern.