The rise in the price of crude oil is bringing new highs to new high levels of rescheduling and risks in terms of safe transportation by sea. The pressure will initially start to appear internationally in tanker rates, subsequently causing serious changes in the trade of Russian crude.
According to a study by Trust Economics, the rise in the price of oil will also push up the price of Russian crude, and in this case, if it crosses the ceiling of $60 per barrel, it will force many Western shipping companies to officially leave from this trade and their place will be taken by tankers that are less safe, older, are not subject to sanctions, owned or insured outside the EU and until the proposal were used in the smuggling of drugs, weapons and in general to violate any embargo imposed on a country. In this case, the freight rates will be multiple for the shipping companies, but the risks will be equally multiple. This fact will be caused by the fact that the big insurance companies of the West will not be able to insure ships that are active in the trade of Russian crude whose price will exceed the maximum price of 60 dollars per barrel.
Trust Economics estimates that the number of tankers carrying Russian crude will fall sharply if global prices rise above $90 a barrel due to pressure on the oil price ceiling system.
The tanker fleet that carried about 40% of Russian crude and oil product exports in March was owned by Greek interests, larger than any other fleet, including Russia’s, according to Trust Economics data. We should point out that the tanker fleet of Greek interests constitutes 27% of the total world tanker fleet.
It is also recalled that European shipping companies can transport Russian crude without violating sanctions if the cargo has been sold below the ceiling price of $60 per barrel, decided by the G7 countries last December. Additionally, last week the European Commission told member states that the $60-a-barrel ceiling on the price of Russian oil is proving effective and hitting Russia without disrupting the market, and will remain unchanged for the time being.
The reduction in OPEC production is the cause
A surprise output cut since March announced by some OPEC+ nations, including Saudi Arabia and Russia, sent crude prices soaring to $85, which in turn put pressure on peak price levels and is the cause of this challenge.
Russian crude trades, Trust Economics reports, at a discount to other grades, but a rise in the price of Brent crude to $90 would likely force shipowners to pull out of trades to avoid carrying purchased Russian oil above the price caps.
This would allow a significantly large number of ships with the characteristics we mentioned in the previous paragraph – to replace the ships of shipping companies in Europe.
It’s worth noting that the relative stability of crude prices since the price cap began last December has so far limited demand for the tanker fleet in question.
The tankers that will no longer be able to be used for the transportation of Russian crude, due to exceeding the ceiling on the price of Russian crude, will look for transport work elsewhere, however, all Russian crude and products will be loaded on ships of other nationalities and unknown ship owners that they may not have adequate insurance coverage and this is of particular concern.
It is noted that according to Canada’s representative to the International Maritime Organization (IMO) a fleet of between 300 and 600 tankers is currently operating as a “dark fleet” to avoid sanctions and high insurance costs.
That fleet is made up mostly of older ships, including some that have not been recently inspected, are poorly maintained, have unclear ownership and certainly have a serious lack of insurance, his spokesman said.
