Ukraine attacks near Kerch Strait could impact Black Sea crude oil carriers

The decision by Ukraine to take the fight to the Eastern Black Sea could have financial implications for the foreign-flag tankers that carry Black Sea crude exports to market. War risk insurance costs and freight rates for tankers might both rise.

Late last week a Ukrainian drone boat struck and damaged Russian product tanker Sig (IMO 9735335) near the Kerch Strait. The tanker had been under US sanctions since 2019 for its alleged role in transporting jet fuel to Russian forces in Syria.

The drone boat damaged the vessel’s superstructure and caused flooding in the engine room. The vessel did not sink and salvage operations began immediately.

On August 5th the tanker was prepared for towing to a shipyard. By August 8th a patch had been placed on the breach and an additional boom was installed in the area of the engine room. During the day, the patch was fixed in place by welding. Since the morning of August 7th the water area of the inner contour of the boom was treated with a biosorbent. Collection of oil and residual oil slicks from the engine room to a tank also continued. A total of 55 cubic metres of oil-water emulsion was collected.

More broadly, Ukraine has declared a “war risk area” for all vessels at the anchorages and harbours of six Russian ports on the northeastern coast of the Black Sea – Anapa, Novorossyisk, Gelendzhyk, Tuapse, Sochi and Taman. Novorossyisk is the primary export loading port for Russian oil on the Black Sea.

While the crude loaded in the Black Sea is commonly called “Russian oil”, a significant proportion of it is labelled as Kazakhstan oil – an unsanctioned country that uses the Black Sea for the majority of its oil exports.

Ukraine’s Ministry of Defence said that “since 1991, Russia has systematically used the territorial waters of Ukraine to organize armed aggressions. Today, they terrorize peaceful Ukrainian cities and destroy grain, condemning hundreds of millions to starvation. It’s time to say to the Russian killers, ‘it’s enough’. There are no more safe waters or peaceful harbours for you in the Black and Azov Seas.”

For the moment, western shipowners and insurers did not appear overly disturbed by an isolated attack on one Russian-flagged tanker. However, Kpler oil analyst Viktor Katona predicted that the price of shipping Russian oil from the Black Sea to India could rise by up to 50% as a consequence of the new Ukrainian threat. “Freight rates will be ballooning next week as the risks of carrying anything across the Black Sea proliferate. Some 2.5m barrels a day of crude and products flows are endangered by the flareup”, he said to Bloomberg. India and China have been buying Russian oil since sanctions were imposed by the west, but this has been neither philanthropy nor an expression of political allegiance. Russian oil has been bought because it is cheaper than international equivalents. If that price advantage is eroded away by threats to exports via the Black Sea, Russia could find its current export markets drying up.