As nations join the wall of sanctions against Russia, the success of this blockade will depend on building new lines of delivery
Shipping is literally on the front line when it comes to the impact of the Ukraine conflict on supply chains. By the second week of the attack, four ships in the busy trade route of the Black Sea reported missile strikes that caused several deaths while an Estonian cargo vessel was sunk. NATO has warned of Russian mines floating in the area.
These incidents are the tip of a looming supply-chain catastrophe that is affecting nearly every industry – banking, retail, transportation, energy and tourism among others. The implications of the blockade are so serious and widespread that many previous assumptions are being overturned.
Long-standing links in the supply chain are being broken. Russian shipping is progressively being banned from most ports in the Baltic. Gibraltar, an important bunkering hub in the Mediterranean, is turning away Russia-flagged vessels and Germany’s two busiest terminal operators, Hamburger Hafen und Logistik and Eurogate, no longer accept cargo heading in and out of Russia.
Rotterdam, Europe’s largest port, refuses all Russian cargoes. And nearly all container lines, with the notable exception of China’s COSCO, have pledged to ship only food and medical equipment.
And that’s just physical goods. Insurers have started to cancel cover of sanctioned vessels on a list drawn up by US Treasury, among them two container ships operated by FESCO, a Russian transportation group.
Simultaneously, hefty penalties in the form of prohibitively high insurance charges are being applied to any vessel such as the giant dry bulk carriers that would visit Russian ports in normal times.
Energy crisis looms
In the energy sector, Europe and UK in particular are faced with a total rethink of long-standing policies that run right through supply lines from source to customer.
Hardly had the first shots been fired than the former head of MI6, security expert Sir Richard Dearlove, urged the government to allow fracking with immediate effect so Britain can replace the gas that’s long been piped from Russia and to start building small nuclear reactors. As he told the Daily Telegraph, Britain’s Net Zero policy is dead – “admirable but totally unrealistic”.
His warning of an energy crisis looks more prescient literally by the day as the price of oil and gas, the commodities that literally fuel the supply chains, go through the roof.
Although the sanctions do not specifically target Russian oil supplies or energy payments, more and more lenders are refusing to touch Russia-related crude even if it was bought before hostilities.
The reputational risk of dealing with Russia is mounting rapidly. “Any shipowner, shipping company, trader or bank working with Russian companies…can be blacklisted at any given time,” warns Windward, an Israeli specialist in maritime analytics.
In a perceptive analysis of the situation, the respected Oxford Institute for Energy Studies warns: “Looking forward, the market focus should not only be on whether the oil sector will be directly targeted by sanctions, but also the crescendo effect of self-sanctioning along the oil supply chain all the way from marketing to financing to shipping.”
If this goes on, the OIES sees “massive shifts in trade flows and sharp adjustments in price differentials.” The energy think tank does not rule out the possibility of Russia “weaponizing energy” if it can’t sell its barrels.
The price of non-fuel commodities is rising too. According to Bloomberg, wheat is up 20 per cent, aluminium nearly 10 per cent and palladium, nickel, silver and even sugar all heading in the wrong direction.
Global supply chains proved adroit at navigating the pandemic but wars present problems that haven’t been seen in half a century. However they could yet rise to the occasion.