UKRAINE CONFLICT: THE REPERCUSSIONS
UKRAINE CRISIS – THE FALLOUT Maritime sector fallout from the Ukraine crisis promises to be multi-faceted and large scale. Andrew Penfold analyses the situation
8 If LNG flows from Russia to the EU, transiting via the Ukraine, were to stop – and similar disruptions felt in the oil sector – then a global energy crisis will result
At the time of writing (mid-February) the outcome of the geopolitical stand-off between Russia and the Ukraine was not clear. Whether Vladimir Putin would activate his force on the border and invade the country or stand down with some form of compromise was unknown. However, what is clear is that the global attitude to the Ukraine and inward investment may well have been permanently compromised. What does all this mean for the port sector? IIMMEDIATE IMPACTS Attention has been focused on the LNG situation. Threats to curtail Russian LNG flows through the country’s transit pipelines to the EU present a major problem for the EU economy (and thus to global energy prices). If these flows were to stop – and similar disruptions felt in the oil sector – then a global energy crisis would be the immediate result. At present, Russia provides around 45 per cent of natural gas imports into Europe and 25 per cent of oil imports. In addition, Russia is the largest coal supplier into Europe. Curtailment of these shipments could not be easily substituted in the short term. The impact of a disruption goes way beyond Europe, however, with Russia supplying around 7.8m barrels per day of crude and products to the world market and accounting for 10 per cent of seaborne trade tonnages and tonne-mileage. At least 65 per cent is destined for Europe. Although China could readily absorb these commodities, it is far from clear how these could be redirected without a restructuring of the entire export infrastructure. It is, however, not just about energy, the position is much more complex.
20 | MARCH 2022
The Ukraine is a major exporter of corn, barley, and rye, but it’s the country’s wheat exports that will have the greatest impact on food security around the world. The development of wheat production in the Ukraine has been a major success story of the past twenty years as the natural advantages of the fertile black earth resources have shaken-off years of collectivised inefficiencies. In 2020, the country exported around 18 million metric tons of wheat out of a total harvest of 24 million metric tons. It should also be noted that a large part of the country’s most productive regions are in the east – exactly those parts most vulnerable to a potential Russian attack or disruption. Increasing production and exports have drawn in major investments in the past ten years, or so. There are numerous ports offering different capabilities with export elevators, but attention has focused on the so-called Tier I ports (those offering effective relatively deepwater export capabilities). These comprise Odessa, Ilichevsk, Yuzhny and Nikolayev, which offer a combined export capacity of around 23m tonnes per annum. The real problem here has been vessel size, with only Yuzhny able to load vessels significantly above 70,000dwt capacity. These limitations have effectively restricted the reach of Ukraine’s grain exports to medium haul markets. Great efforts and assessments have been directed towards improving export capacity but – always – uncertainties at the political level have stymied developments. There are grain elevator/grain terminal expansion plans in the Ukraine, but funding looks risky and whatever the shortterm outcome this can only slow development of the Ukraine as a grain exporter.
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