Freight costs related to oil have skyrocketed after the U.S. announced a tighter sanction last week to disrupt Russia’s war effort, a move specifically targeting Moscow’s maritime commerce.
On 10 January, the Department of Treasury announced new measures to cut Russia’s revenue from energy, this included sanctions against Gazprom Neft and Surgutneftegas, as well as 183 vessels that were largely oil tankers that are either part of the shadow fleet or owned by Russia-based operators.
The Treasury added that the numbers of the sanctioned vessels had transported both Russian and Iranian oil. The sanction also extended to Russia’s base maritime insurance provider Ingosstrakh Insurance Company and AlfaStrakhovanie Group.
This move aimed to strike a devastating blow to Russia, which has rerouted its crude and oil products into Asia-Pacific after the exports were banned in Europe and G7 nations, which came into effect in December 2022 and February 2023 respectively.
Vortexa, an analytics firm, told CNBC on 7 January that around 890 vessels loaded with both crude and oil products were loaded with Russian oil, 107 or 12% of these ships were subject to vessel-specific sanctions at the time.
However, the figure did not account for the International Energy Agency assessment that last year around 160 of the 183 sanctioned tankers had shipped over 1.6 million barrels of Russian oil per day, which made up 22% of Russia’s maritime exports of that year.
The latest U.S. measures also plan to stiffen the number of vessels for non-Russian commission, inflating shipping costs for other ships. After the 10 January announcement, the effect of the sanction has affected other oil freight. The volume of traded Forward Freight Agreement (FFA) contracts soared to 11,412 contracts on 10 January, easily surpassing 7,900 and 6,700 contracts from 13 and 14th January respectively, according to the number from Baltic Exchange. The average daily traded contracts in the last two months of that year were 2,987 and 1,683 contracts respectively.
According to data from Argus Media, shipping costs for supertankers crossing from the Middle-East Gulf to Asia-Pacific, the bread and butter of oil trade, jumped at least 40% between 9 to 14 January.
The IEA noted that the sanctions could substantially disrupt the Russian oil supply and distribution chain. Russia’s exports will take a huge blow from the reduction of its shadow fleet, the ousting of shipping insurance, the restriction of dominant traders of Russian oil, and the designation of key handling companies in consumer markets.
However, the agency failed to consider the latest U.S. step in its forecast of Russian supply, noting that crude oil exports from OPEC+ members from Eastern Europe plunged by 250,000 barrels daily month-on-month to 4.6 million barrels daily in December.
