Why The West May Sanction Russian Shipping Companies Before It Sanctions Oil & Gas

The outbreak of war in Eastern Ukraine has raised fears about the impact of further sanctions on global energy markets, coupled with the UK Prime Minister’s announcement today of “a massive package of economic sanctions” to come. As far as the Shipping industry is concerned, so far, only one Shipping company has been directly sanctioned.

world map with searoute mentioned from russia
Figure 1. Journeys and stoppages of the PSB Leasing owned Tanker Linda in the last 24 months | Image Credits: VesselsValue

PSB Leasing owns five ships: two Tankers, two Multipurpose ships and one RoRo (a “roll-on, roll-off” ferry for vehicles). At least one of its Tankers was already involved in sanctioned Iran trade, although it has also called in the US, UK and EU in the last two years, as shown in Figure 1. However five ships out of a global fleet of over 78,000 will hardly cause a ripple, let alone any type of disruption.

Almost every analyst and news outlet has noted that sanctions on Russian oil and gas exports may be against the West’s own interests, as prices are already high, and this would take out significant supply. As shown in Figure 2, in 2021, Russian exports accounted for 5.2% of global seaborne trade on Tankers (oil and refined oil products), and 6.0% of global seaborne trade on Liquified Natural Gas (LNG) Carriers. Such significant proportions are not readily replaceable from other sources.

bar chart depicting data
Figure 2. Russian Exports as a Proportion of Seaborne Trade in 2021, by Ship type

The balance of incentives may tilt the other way. But if Russia was to restrict energy exports to the West, it would also stand to lose considerable export revenues. As an aside, Russian exports also accounted for 3.7% of global seaborne trade on Bulkers and their absence would be palpable in markets such as grains, fertilisers, and coal.

Given the possible adverse price impact of sanctions on oil and gas, the more interesting question then becomes “If more Russian companies are sanctioned, how much of the world fleet is at risk?” Looking at ownership structures of ships yields some useful insights, as shown in Figure 3.

bar chart depicting data
Figure 3. Proportion of World Fleet with Russian companies in the Ownership Structure, by Ship type

Potentially, 7.4% of the world’s Tanker fleet would be at risk, as would 3.5% of the world’s LNG Carrier fleet. With cripplingly weak utilisation and freight rates afflicting both of those sectors for the past several months, in marked contrast to booming Dry Bulk Carrier and Containership sectors, sanctions on Russian shipping companies could remove some excess supply of ships from the openly competitive market without causing as large an upward movement in freight rates.

bar chart depicting data
Figure 4. The “At Risk” Fleet’s Market Share of Total Cargo-Miles in 2021, by Ship type

When looking at what this could mean for relative market shares, the impact becomes far more pronounced for gas than oil, as shown in Figure 4. In 2021, “At Risk” LNG Carriers contributed 7.0% of total CBM-miles, whereas “At Risk” Tankers contributed only 2.1% of total ton-miles. This is a function of the former trading over longer distances and the latter over shorter distances. Sanctions on Russian Shipping companies could therefore potentially vacate a greater market share for non-sanctioned companies in the LNG Carrier market than in the Tanker market.

Market participants will also look at how much Russian trade would become available to unsanctioned companies under this scenario. Figure 5 below shows “At Risk” LNG Carriers had 85.8% of CBM-miles emanating from Russia in 2021, nearing complete dominance. Moreover, “At Risk” LPG Carriers had 36.8% of Russian CBM-miles, although absolute volumes are very small. A 20.1% market share of the sizeable Russian trade for “At Risk” Tankers will not go unnoticed by those in the oil market.

bar chart depicting data
Figure 5. The “At Risk” Fleet’s Market Share of Russian Export Cargo-Miles in 2021, by Ship type

From looking at the data, one would expect policymakers to consider very carefully the impact on Western consumers and households before sanctioning oil and gas. However, there could be more scope to sanction the ships and companies that carry them, due to the lesser impact on global trade and exports.

Press Release | VesselsValue

Disclaimer :
The information contained in this website is for general information purposes only. While we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this website.

Do you have info to share with us ? Suggest a correction

Latest Shipping News You Would Like:

Get the Latest Maritime News Delivered to Your Inbox!

Our free, fast, and fun newsletter on the global maritime industry, delivered everyday.

Leave a Reply

Your email address will not be published. Required fields are marked *