Wartime threats to commercial shipping are serious; at this point anything can happen in the Black Sea. Russia’s seaborne oil exports could be at risk too.
Russia has wasted no time ratcheting up tensions since its exit from the Black Sea Grain Initiative on July 17th. Pulling out of the grain deal and immediately threatening ships headed toward Ukrainian ports on the Black Sea is clearly part of a calculated Russian strategy to intensify pressure on Ukraine as the war continues.
Limiting Ukraine’s access to Black Sea shipping in order to choke off Ukrainian supplies of wheat, corn, barley, and sunseeds from global markets makes strategic sense from a wartime perspective. Russia wants to deny Ukraine the ability to raise foreign currency through export earnings and, perhaps more significantly, the Russians are trying to harm agricultural markets inside Ukraine by disrupting the plant-harvest-export logistics cycle that allows Ukraine to be a global powerhouse in agricultural export markets. Ukraine is the largest exporter of corn from the Black Sea, the largest exporter of sunseed products from the Black Sea, and the second largest exporter of wheat from the Black Sea.
In the current crop year, Ukraine is, in fact, the third largest exporter of corn in the world and the fifth largest global exporter of wheat. It’s of little wonder as to why the news of Russia’s exit from the grain deal impacted global grain prices.
But Russia is a larger, far more important exporter of wheat than Ukraine. Russia is the undisputed king of global wheat exports, shipping almost three times the amount of wheat through the Black Sea than does Ukraine.
Wheat gets all the headlines of late, but a too often overlooked fact about Russia is that it is the world’s second largest exporter of crude oil, second only to Saudi Arabia. If one includes refined oil products (gasoline, diesel, gasoil, etc) then Russia is the world’s largest provider of oil (and oil products) to global export markets; just under half of those exports travel on ocean going oil tankers through the Black Sea.
It doesn’t take much effort to see the dangers of shipping disruptions in the Black Sea to global oil markets. With its stern warning on July 19, 2023 that any flagged ship headed to Ukrainian Black Sea ports would be considered to be carrying war supplies, Russia has literally declared war on ships headed to Ukraine. Ukraine has now responded with in-kind rhetoric, warning that beginning Friday July 21, 2023, ships heading to Russian-controlled Black Sea ports could be targeted as well. The White House also joined the fray, announcing that it suspects Russia may be planning a “false flag” operation of some sort that would target civilian ships for attack but somehow lay blame on Ukraine for the incident.
All of this is just talk so far, but the war is real, Russia is ruthless, and Ukraine is somewhat desperate right now, at least when it comes to its ability to export products through the Black Sea. If an oil tanker is targeted, or even if Black Sea shipping rates and insurance coverage keep rising or become completely economically unfeasible, it will eventually affect international oil prices, which will, in turn have a direct impact on the global economy. Stay tuned, and don’t be surprised if global oil prices are the next thing to rise, at least temporarily, due to the rising tensions in the Black Sea.
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