Russia’s war on Ukraine caused an “earthquake” in the shipping industry and global trade

Russia’s seven-day invasion of Ukraine caused an “earthquake” in the shipping and trade industry, disrupting roads, diverting merchant ships and increasing costs as Western sanctions began to affect Moscow, according to an Israeli company founder. Naval Intelligence Windward Corporation.

Windward, which leverages artificial intelligence and machine learning to solve customer shipping aggregators, has been tracking the effects of conflict across the global shipping system since the crisis began last Thursday. In a report on Wednesday, the company said there has been a sharp decrease in transit activity in the Bosphorus Strait (also known as the Istanbul Strait), which connects the Black Sea and the Sea of ​​Azov where Ukraine reaches the sea, and a sudden rise in the number of ships has changed the identification system. Automatic (AIS) to the destination transported from Ukrainian ports to Constanta, Romania, and Istanbul, Turkey.

The Russian and Ukrainian ports on the Black Sea are major export centers for wheat, corn and crude oil. Russia is the world’s largest wheat supplier, and Ukraine accounts for about 12% of global wheat supply and about 16% of global corn exports, according to the US Department of Agriculture. Together, the two countries account for 80% of the sunflower oil used in food processing.

According to Windward’s report, insurers have raised costs by up to 5% to provide cover for merchant ships across the Black Sea, adding to the already high rates of freight moving through the region and further affecting supply chain complexes hit by the pandemic.

Western sanctions have also affected Russia, significantly increasing the risks for shipping companies and financial institutions working with Russian entities, and sending shock waves into trade finance, a global system for financing the import and export of goods.

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The current crisis is “not an earthquake,” Ami Daniel, CEO and co-founder of Windward, told The Times of Israel in a phone interview on Wednesday.

“The world is polarized. We are witnessing a new kind of moral sanctions. We have seen oil prices go above $100 a barrel, we have seen Russian oil become semi-toxic, Russian ships have become toxic.

In this image provided by the New York Stock Exchange, traders Ben Tuchman, left, and Colby Nelson work on the ground, Wednesday, March 2, 2022. Wall Street took another sharp swing on Wednesday, this time back in bullish mode, as stocks and Treasury yields soar Even as oil prices continue to rise. (Ally Joseph/NYSE via AP)

Oil prices continued to rise on Wednesday and briefly exceeded $110 a barrel, as investors feared a Russian invasion.

Russia is a very important supplier of oil, natural gas and minerals, and the rise in prices for these commodities is sure to cause economic damage worldwide. Europe depends on Russia for nearly 40% of its natural gas and 25% of its oil.

In addition to supply restrictions, some oil buyers in recent days have shunned Russian crude, fearing that if sanctions are applied to Russian oil or gas, the oil purchased may become unusable.

Daniel estimated that there are about 30 million barrels of Russian oil currently being transported “and no one will receive it, it has not been offloaded at any port” for fear of exposure to sanctions violations.

The United States has condemned a number of large financial institutions and Russian companies in various industries, including the country’s largest shipowner Sofcom Float (SCF Group), a state-owned company specializing in the transportation of oil, petroleum products and liquefied natural gas.

Sovcomflot directly owns 229 tankers, according to Windward research, but about 2,000 of the roughly 44,000 cargo ships and tankers operating in the world in the past two years are owned by companies registered in Russia and new sanctions could be imposed on additional companies at any time. Daniel said. Western companies will have to consider renegotiating every deal involving a Russian entity, according to the report co-written by Daniel.

The tanker Sun Arrows carries its cargo of liquefied natural gas from the Sakhalin-2 project at the port of Prigorodnoye, Russia, October 29, 2021 (AP Photo, File)

These 2,000 vessels’ are toxic, and no one wants to touch them because no one knows what’s going to happen. OFAC [the US Department of the Treasury’s Office of Foreign Assets Control]“Please do not sign any contract … for 14 days with any Russian entity,” Daniel said, in one of his ads, in a very elegant manner, adding that this resulted in “the shutdown of everything and anything completely Russian.” . “

“European refineries have turned down shipments to the market, because people are afraid of sanctions, so they don’t,” Amy Myers Jaff, research professor and managing director of the Climate Policy Laboratory at Tufts University, told The Associated Press. which they cannot resell.

Louise Dixon, chief oil market analyst at Rystad Energy, told the news agency that Russia’s actions in Ukraine had made its crude oil “one of the most toxic barrels on the market.”

Sanctions affect trade finance

The United Kingdom said on Tuesday it was banning any ship with Russian links from its ports as the country stepped up efforts to isolate Russian President Vladimir Putin and his government over the invasion of Ukraine.

Announcing the blanket ban in a tweet, British Transport Secretary Grant Shapps encouraged other countries to ban ships linked to Russia from using their ports. “We have just become the first country to pass a law that includes a total ban on all ships with any Russian contact whatsoever from entering British ports,” Shapps said.

The decision came a day after Scotland’s first minister, Nicola Sturgeon, urged Shapps to prevent a Russian tanker from docking in the Orkney Islands, where the ship was due to arrive on Tuesday.

Earlier this week, Turkey moved to restrict access to Russian warships through the Bosphorus and the Dardanelles.

A man walks past the office of Sberbank in Moscow, Russia, March 2, 2022 (AP Photo/Pavel Golovkin)

Daniel noted that over the past day, the world’s three largest shipping lines – Danish shipping giant Maersk, Switzerland-based MSC and France’s CMA CGM – suspended all non-essential deliveries to Russia. This means that “28% of container capacity is withdrawn from Russia; this is the earthquake,” he explained.

Sanctions also significantly affect trade finance, the system by which imports and exports of goods are financed through direct payment or lines of credit by financial institutions.

According to the report, “By cutting off access to the US and European financial markets, Russian companies will not be able to finance the majority of global deals as reimbursement for these exports by US and European regulators will be halted.”

Daniel said that with the blacklisting of major Russian banks such as Sberbank, VTB and Promswisbank (PSB) by the United States, about 5-8% of the total trade finance capacity has been withdrawn from the market, because they were working with everyone. .

With Ukraine completely closed to exports, “this creates a crisis in the wheat market…No one will take Russian wheat at the moment,” he said, noting that major companies have joined governments in punishing Russia.

Farmers harvest their harvest in a wheat field near the village of Tbiliskaya, Russia, July 21, 2021 (AP/Vitaly Timkiv)

This week, multinationals such as Boeing, Airbus, Exxon, Apple, Ford and Nike joined tech companies such as Meta (Facebook), Google and Microsoft in either suspending operations or restricting access or service in Russia over its aggression in Ukraine.

He said Russia was a superpower “rooted in trade, finance, shipping – every aspect of the global economy”.

We’ve never seen this before in the history of economic sanctions. People have always done the minimum, not the maximum. Daniel said they are doing their best now because of the terrible situation “in Ukraine.

Agencies contributed to this report.

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