Russia shifts its raw material exports from Europe to China and India

The Impact of the Russian-Ukrainian Conflict on Global Maritime Trade

The conflict between Russia and Ukraine that began with the Russian invasion of Ukraine on February 24, 2022, is still ongoing, and it has had significant consequences on worldwide maritime transportation. The closure of Ukrainian ports, sanctions on Russian imports through maritime routes, and the energy and raw materials crisis have all led to significant variations in the origin and destination matrices of global maritime trade. In most cases, this has resulted in an increase in the average distance of major shipping routes.

Impact on the Oil Market

According to Norwegian broker Fearnleys, in the 12 months following the invasion, the Russian oil sector transported an average of 3.2 million barrels per day (Mb/d) via maritime routes. This figure is similar to the one registered in the 12 months prior to the conflict. However, there have been significant variations in destinations.

Volumes from Baltic and Black Sea ports with a destination of Europe began to decrease shortly after the outbreak of war, and loads destined for Asia increased, registering an average of 1.9 Mb/d in the 12 months after the invasion, compared to 1.0 Mb/d in the 12 months prior, according to Fearnleys. This represents an increase of approximately 880,000 b/d of crude oil bound for Asia, resulting in a corresponding increase in demand in terms of tonne·miles.

The largest importers have been India and China. The former significantly increased its imports of Russian crude oil from 31,000 b/d to 829,000 b/d on average. China, on the other hand, has received 994,000 b/d since the invasion, compared to 700,000 b/d in the previous period.

Russian exports of clean petroleum products (primarily diesel and naphtha) have also remained stable, at around 1.6 Mb/d, with volumes reaching 1.9 million barrels per day in the last two months before the EU and G7 imposed a price limit on February 5. Between the start of the invasion and that date, Europe imported an average of 908,000 b/d. Since February 5, imports have decreased by an average of 266,000 b/d.

Europe is seeking alternative origins in the East for its clean product imports, while Russia is exporting to Asia and Africa primarily.

Regarding dirty petroleum products (mainly fuel oil), Russia exported approximately 870,000 b/d in the last 12 months, compared to 1.1 Mb/d in the previous 12 months, according to Fearnleys. Thirty-one percent was destined for Europe and 4% for the US, compared to 49% and 30%, respectively, during the same period before the invasion. In contrast, exports to Asia have grown significantly, with a 42% share, and to the Middle East, with a 15% share, compared to 12% and 5% in the previous period, respectively.

Impact on the Gas Sector

In the gas sector, European pipeline imports have experienced a year-on-year decline of 55%, which has had to be covered by a 70% year-on-year increase in LNG imports via maritime routes, according to Fearnleys. About 61% of US LNG exports were destined for Europe, compared to 25% in 2021.

According to Dag Kilen, head of analysis at Fearnleys, the weakness of Chinese and Asian demand has benefited Europe so far. However, the expected return to normalcy in China, the shortage of supply through pipelines, and the lack of liquefaction capacity could lead to a decrease in LNG supply in Europe next winter.

Impact on Ammonia

The invasion of Ukraine by Russia has had significant impacts on the ammonia and bulk shipping industries. The port of Yuzhny, located in the Black Sea, was responsible for almost 11% of global ammonia exports by sea in 2021. These exports came to a complete halt, causing an increase in fertilizer prices and fear of a potential food shortage.

However, there was only a moderate 2.1% decrease in the volume of ammonia transported by sea in 2022 compared to 2021. This was mainly due to the increase in exports from Saudi Arabia, Indonesia, and Algeria, as well as the world’s largest producer, Trinidad and Tobago, despite the latter’s production reduction in 2022.

Solid Bulk Shipping

Coal and cereals have been the raw materials most affected by the invasion of Ukraine. The European ban on coal imports from Russia has led to increased imports from South Africa and Australia, which have reached their highest level in ten years, as well as significant increases in imports from Colombia and the United States. Russian coal, on the other hand, has found alternatives in China, India, South Korea, and Turkey. These changes have resulted in increased sailing distances and tonne-miles.

As for cereals, it has been almost impossible to replace Ukrainian exports, so there have been barely any significant changes in trade flows, apart from a notable loss of volumes. Ukrainian solid bulk exports have plummeted 77.8% during the first 12 months since the Russian invasion, according to BIMCO data. Prior to the war, over a tenth of the world’s maritime trade in wheat and corn came from Ukraine.

Impacts on the Ammonia and Bulk Shipping Industries

The invasion of Ukraine by Russia has had a significant impact on the ammonia and bulk shipping industries. One of the most affected areas is the port of Yuzhny, which used to be responsible for nearly 11% of global ammonia exports by sea. With exports coming to a complete halt, fertilizer prices have increased, and there is a growing concern about potential food shortages.

Despite these challenges, the volume of ammonia transported by sea only experienced a moderate 2.1% decline in 2022 compared to 2021. This was largely due to the increase in exports from countries like Saudi Arabia, Indonesia, and Algeria, as well as Trinidad and Tobago, the world’s largest producer. Although Trinidad and Tobago reduced its production in 2022, it was still able to contribute to maintaining the ammonia supply chain.

Solid bulk shipping has also been affected by the invasion, with coal and cereals being the most impacted raw materials. The European ban on coal imports from Russia has led to increased imports from South Africa, Australia, Colombia, and the United States, while Chinese, Indian, South Korean, and Turkish markets have absorbed the excess supply of Russian coal. The changes in coal trade have led to longer sailing distances and more tonne-miles.

Cereals have been another area of concern, with the loss of volumes due to the inability to replace Ukrainian exports. Solid bulk exports from Ukraine have fallen by 77.8% during the first 12 months since the Russian invasion, according to BIMCO data. Before the war, Ukraine accounted for over a tenth of the world’s maritime trade in wheat and corn, making the country’s absence felt in the cereals market.