Ukraine declares war on Russia’s Black Sea shipping

Russian ports and ships on the Black Sea — including tankers carrying millions of barrels of oil to Europe — could justifiably be attacked by the Ukrainian military as part of efforts to weaken Moscow’s war machine, a senior Kyiv official warned Monday in the wake of two recent attacks on Russian vessels.

“Everything the Russians are moving back and forth on the Black Sea are our valid military targets,” Oleg Ustenko, an economic adviser to Ukrainian President Volodymyr Zelenskyy, told POLITICO, saying the move was retaliation for Russia withdrawing from the U.N.-brokered Black Sea grain deal and unleashing a series of missile attacks on agricultural stores and ports.

“This story started with Russia blocking the grain corridor, threatening to attack our vessels, destroying our ports,” Ustenko said. “Our maritime infrastructure is under constant attack.”

Over the weekend, Ukraine declared the waters around Russia’s Black Sea ports a “war risk area” from August 23 “until further notice.” The zone includes major Russian ports like Novorossiysk, Anapa, Gelendzhik, Tuapse, Sochi and Taman.

That’s causing insurance rates for ships to skyrocket and could imperil one of Russia’s main export routes for oil and oil products — key in ensuring the Kremlin has enough cash to keep waging war against Ukraine.

“After this weekend, the Black Sea feels like a more dangerous place for international shipping, and it was already very dangerous,” said Byron McKinney, director with S&P Global Market Intelligence. “Many vessels simply don’t go to the area. Insurance is pretty much nonexistent. Where there are insurance rates they’re very high and that’s only going to increase.”

On Saturday, Russia’s federal maritime agency, Rosmorrechflot, reported that a Russian tanker, the Sig, had been hit in an apparent strike by Ukrainian forces while sailing close to Ukraine’s occupied Crimean peninsula.

“The tanker received a hit on its engine room, close to the waterline on the starboard side, presumably as a result of an attack by a sea drone,” officials said.

Ukraine’s defense ministry said that as long as Russians “terrorize peaceful Ukrainian cities and destroy grain condemning hundreds of millions to starvation,” there would be “no more safe waters or peaceful harbors for you in the Black and Azov Seas.”

Crude crisis

Last month, Russia shipped almost 59 million barrels of crude oil, a third of its overall exports, from the strategic Black Sea port of Novorossiysk, according to intelligence firm Kpler. Of that, 32 million barrels went to EU countries. The port also handles other fuels like diesel, gasoil and naphtha in addition to grain destined for the global market.

Novorossiysk is also where the Caspian Pipeline Consortium oil conduit terminates, bringing up to 1.3 million barrels a day of oil from Kazakhstan — from where it is shipped on to world markets.

Novorossiysk is also home to a major naval base of the Black Sea Fleet. Last week, a Ukrainian sea drone hit and damaged a Russian military landing vessel, the Olenegorsky Gornyak.

The proximity of Moscow’s military to trade ports could increase the risk to civilian vessels, warned Alexis Ellender, a commodities analyst with Kpler.

“Those operating on the shipping markets are saying they obviously don’t expect Ukraine to attack commercial shipping, but there’s a risk that installations or ships get caught in the crossfire and there’s a lot of trade that moves through Russia’s Black Sea ports,” he said. “There’s a lot of Greek ships working on these trades and while some owners are reluctant to carry Russian cargo, there’s a whole international mix there.”

Shipping forecast

The growing risk the conflict poses to busy international waterways will mean tough decisions for the shipping industry, and for traders tempted to keep buying cheap Russian oil under the terms of a $60 per barrel price cap set last year by the G7.

“You’ve still got Greek and Turkish tankers operating around that zone though, working with Russian oil within the price cap restrictions, and there were quite a few foreign-owned vessels in and around the vicinity of the drone attack in Novorossiysk,” said McKinney. “The most interesting question to come out of this is whether they will be deterred in the future if their multimillion dollar assets are now at risk from a stray missile or whatever it may be.”

The International Chamber of Shipping, which represents shipowners and operators, declined to comment on whether the latest flareups in the Black Sea would deter its members from doing business there.

But, for Ustenko, Western companies should already be realizing there can be no more business as usual with Russia.

“From a legal and moral perspective, it’s completely unjustifiable for these vessels to continue to deliver Russian oil,” he said. “Now that’s supported from the economic point of view as well since the risk is extremely high. Under these circumstances, the prices of insurance are going to jump significantly, making these deliveries unprofitable. Your vessel and your crew is going to be under huge risk.”

“The big companies selling insurance, doing financing, are they prepared to continue this kind of work when they see these pictures coming from the Black Sea?” Ustenko asked. “This is the right moment for even those still trying to close their eyes and pretend nothing has really happened for them to realize — no way.”

Hanne Cokelaere contributed reporting.