EU sanctions keep shipowners on alert

On the first day of the special European Council taking place on 30-31 May, EU leaders agreed on the sixth package of sanctions against Russia, that includes a ban on crude oil and petroleum products, with a temporary exception for crude oil delivered by pipeline.

President of the Commission Ursula von der Leyen welcomed the agreement, calling it an important step forward. She also recalled other restrictive measures that this package of sanctions includes, such as de-SWIFTing Sberbank, by far Russia’s largest bank, and the suspension of broadcasting of three big Russian state-owned broadcasters from EU airwaves.

In addition to a ban on all seaborne oil imports – about two thirds of Russia’s crude and fuel exports into the EU – European companies will also be stopped from insuring cargoes of Russian oil. This will go some way to limiting Russia’s ability to pivot its oil exports to other markets, a move that could negate the pressure of European sanctions on the Russian war machine.

Despite the progress that has been made some major issues remain including:

• Carveouts for oil delivered from Russia by pipeline, including a generous exemption for Hungary, with no date set for when it has to end Russian oil imports.
• Implementation of the ban delayed until the end of the year, allowing Putin to continue to benefit from increasingly high oil prices.
• Insufficient measures to reduce Europe’s overall oil demand.
• Continued lack of progress over Europe’s Russian gas imports.
• No significant measures to prevent Greek, Cypriot and Maltese tankers from carrying Russian oil.

Ship operators are braced for further disruption to trading patterns as the European Union targets a sixth round of sanctions against Russia in response to its invasion of Ukraine.

Around 29% of the EU’s crude oil imports came from Russia in 2020. Combined with the previously announced phase-out of Russian natural gas imports, accounting for 43% of all imported gas, the sanction would have a dramatic impact on the European energy market and cause significant shifts in oil and gas trading across the world.

One implication will be the increased sourcing of EU gas and oil imports from beyond Russia. For non-EU ship operators not prohibited from trading with Russia, a similar effect will be felt as Russia seeks alternative markets for its oil and gas.

“This will most probably increase the tonne-miles associated with their transportation and thereby increase the demand for tankers and LNG carriers,” said John Lyras, Principal at Paralos Maritime Corporation and ICS Board Member.

A greater concern for EU ship owners would be if the EU sanctions include a ban on importing Russian oil and gas to third countries. Lyras explained that, as cross-traders, European owners and Greek operators in particular are more exposed to these trades than direct trading between Russia and the EU.

“A ban would entail the transportation of these cargoes by non-European and non-Western shipping to replace European owned or operated ships,” he said.

Such a shift could have a big impact on transport costs and subsequent product prices, given the large proportion of tanker and gas carrier capacity that would be excluded from the trades.