How Russia’s war in Ukraine further upended the world of shipping

The world has been turned upside down, this column said in early March following the Russian invasion of Ukraine.

Oil prices hit $130 a barrel, gas values ​​soared, nickel trade was suspended, Ukrainian ports were closed, marine insurance rates soared and freight rates swirled with each new measure aimed at strengthening the sanctions.

Almost four months later, shipping and the wider industrialized world have come to terms with some aspects of the conflict – although oil prices remain high at $117, gas prices are up 77% from the same period last year, Ukrainian ports are closed and freight rates unpredictable. Oh, and Russia defaulted on its foreign debt for the first time since the Bolshevik Revolution of 1917.

The war continues and the impacts, while more normalized, are arguably still as traumatic as the Covid pandemic that preceded it.

Perhaps the world is no longer “upside down”, but still “upside down”. And this conflict over the Black Sea has shown how interconnected global trade and its participants have become, but how opaque this world remains.

This week, the Indian Register of Shipping (IRClass) dismissed accusations that it was offering safe haven to 70 Sovcomflot (SCF Group) tankers that had moved from the Russian flag to the Mumbai-based register.

The article continues below the ad

IRClass argued that “the vessels are operated by various entities in Dubai and other parts of the world. None of the companies owning the vessels are registered in Russia”.

IRClass is a member of the International Association of Premier Classification Societies along with Lloyd’s Register, ABS and DNV. These last three avoided any involvement in the Sovcomflot ships as they left Russia. Have the 70 ships been sold to new independent owners or are they still ultimately controlled by Russian interests? Who knows?

IRClass might be less interested in this issue because, as he points out, neither the United Nations nor India itself has imposed any sanctions on Russia. Narendra Modi, India’s Prime Minister, has avoided publicly criticizing its Russian President Vladimir Putin.

The question associated with Russian shipping is how to manage these oil and gas exports that have become so important to Western economies.

The leaders of the so-called “advanced economies” of the G7 met this week in Germany to try to find ways to turn off the financial tap of the Kremlin war machine.

A cap on Russian energy prices is being considered in a bid to reduce Moscow’s revenue and hopefully reduce soaring global inflation.

The exact mechanism to achieve this – possibly involving limiting the availability of insurance for Russian oil shipments and shipping services – remains unclear and many, including ExxonMobil boss Darren Woods, have wondered if it was even realistic.

And meanwhile, a larger and more important question is developing around the use of fossil fuels and decarbonization.

Not only have these various sanctions led by the United States and Europe changed trading patterns, but they have also led to the prioritization of energy security over decarbonization.

Many political leaders accept that the long-term solution to Russia’s fossil fuel dependence is to move faster to renewables

Many political leaders accept that the long-term solution to Russia’s reliance on fossil fuels is to switch to renewables more quickly.

But short-term thinking is different. As Russia threatens to stop all gas shipments to Europe, continental countries are trying to keep open coal-fired power plants that were supposed to be shut down to reduce CO2 emissions.

This has wider significance for the maritime world, which had been much divided over arguments over how – or at least how fast – to decarbonise with all the technological and financial complications.

There is no doubt that the war in Ukraine has reduced some of the immediate pressure on shipowners and others. This is undoubtedly welcome for the industry, but also dangerous given that global carbon emissions continue to rise despite the disastrous longer-term consequences.

Forward-looking companies such as Danish ocean liner giant AP Moller-Maersk continue to order new methanol-powered vessels: another mega order is expected shortly.

And debates continue over the future role of gas, with ocean liner giant CMA CGM showing its hand this week by signing a multi-year deal with Shell for the supply of LNG to power its ships.

Liner companies in particular, which have reaped windfall profits from a boom in post-Covid freight rates, are well placed to lead the “green” path.

But the war in Ukraine has accelerated interest rate hikes and there are warnings everywhere of a looming global economic recession that could further undermine climate action.