U.S. sanctions on Russia hit oil freight rates

Oil-related shipping costs rallied after last week’s announcement of tougher US sanctions to drain Russia’s war coffers, in a move that poses significant threats to maritime distribution chains of Moscow.

On January 10, the US Treasury Department announced fresh measures to deplete Russia’s energy revenues, including sanctions against key producers Gazprom Neft and Surgutneftegas, with 183 vessels that were “largely oil tankers that are part of the shadow fleet, and oil tankers of operators of fleet in Russia”.

The Treasury added that many of the designated tankers had been transporting Russian and Iranian oil, and also extended sanctions to Russia-based marine insurance providers Ingosstrakh Insurance Company and AlfaStrakhovanie Group.

This is intended to deal a critical blow to Russia, which was forced to redirect its supplies of crude oil and petroleum products to the Asia-Pacific, after these volumes were banned by European and G7 sanctions, which entered into effective in December 2022 and February 2023, respectively.

Already, about 890 unique tankers loaded crude oil — including both crude oil products — in the past six months, analytics firm Vortexa told CNBC on Jan. 7, with 107 of these vessels — or 12% of the total – are subject to the building. – specific sanctions at the time.

The figures did not appear in the announcement of January 10. On Wednesday, the International Energy Agency, based in Paris estimated that about 160 of the 183 blocked tankers moved more than 1.6 million barrels per day of Russian oil last year, accounting for 22% of Russian maritime exports during the period.

The latest US measures are also set to increase the number of vessels available for commissioning by non-Russian parties, pushing up shipping costs for other tankers. Since the announcement on January 10, the effect of the bans has spilled over into freight derivatives, with the volume of Forward Freight Agreement (FFA) contracts being traded – which can allow traders to cover volatility in floating freight rates – jumping to 11,412 in January. 10, and above 7,900 and 6,700 on January 13 and January 14, respectively, according to data from the Baltic Exchange. The figures compare with 2,987 and 1,683 contracts traded every day on average in the months of November and December, respectively.

Rates for supertankers sailing from the Gulf of the Middle East to the Asia-Pacific – a bellwether route for the oil industry – rose by more than 40% between January 9 and January 14, according to price data from Argus Media.

As a result, the sanctions “could significantly disrupt Russian oil supply and distribution chains,” the IEA warned, noting that Russian exports “will take a hit from the reduction in the shadow tanker fleet” and ” the elimination of shipping insurance, the bridling of dominant”. Russian oil traders and the designation of key management companies in consumer markets”.

However, the agency did not implement the latest steps of the United States in its forecasts of Russian supply, while noting that crude oil exports from the Eastern European country – a key member of the alliance OPEC + – fell by 250,000 barrels per day to 4.6 million. barrels per day in December.