The effects of the Russia-Ukraine conflict on maritime trade

Syllabus: General Studies Paper 2

Context

• As Russia continues its military campaign in Ukraine, the Western economies and their allies have adopted punitive measures, including the imposition of crippling sanctions, in order to effectively paralyse the Russian economy and its citizens.
• As a result of interruptions in the global supply chain, the shipping industry is projected to be particularly hard hit, with delays and shipping prices expected to rise.

 Impact on maritime trade so far in Ukraine

• When the war began, some 15 seaports in Ukraine were forced to close their doors. The loading and unloading of freight has been suspended.
• Approximately 140 ships that were berthed in Ukrainian ports at the time of the conflict have remained in the ports ever since. So yet, no attack has been launched on any of the ports or the ships that are berthed in them.
• Two ships were assaulted while in port, prompting traders to steer clear of the Black Sea as a shipping route for their vessels. For mariners, the safest location to be in the event of an accident is always the ship, which is equipped with electricity, food, and the ability to produce water. According to Sanjay Prashar, managing director of VR Maritime Services, although bunkers at ports have been found for the purpose of safely lodging seafarers, ship crews have not yet left their vessels.
• One of the company’s ships has become trapped in a port in Ukraine. Some of the stranded ships at Ukrainian ports had crews from India on board, according to reports. Aside from a few isolated strikes, ports and nuclear power plants have not been subjected to significant warfare or attack as strategic assets. So far, the Russian Army and Air Force have been active in the conflict, with just a modest naval operation at Kerch serving as an exception, according to Pritam Banerjee, a logistics specialist.
• Port cities like as Mariupol have been assaulted from the land, but the Ukrainian people have held firm and resisted the invasion. As a result, the Ukrainian president has warned that Russian warships are preparing to strike the Odessa port. This would represent a significant escalation in the war.
• There will be a direct threat to all commerce ships in the area. As a direct result of the war, insurance rates for ships operating in the Black Sea will increase.

What has been the impact globally?

• In the previous week, crude oil prices have risen by 20% in response to worries about probable supply interruptions, particularly since Russia is a key exporter of oil and natural gas through pipelines as well as ships.
• The Black Sea is home to the few warm water ports that the nation possesses, and it also serves as the battleground for the conflict. Bunker fuel, also known as ship fuel, is increasing in price in tandem with the rise in the price of crude oil. Fuel expenses are the most significant component to a ship’s running costs, and an increase in fuel prices will have a cascading impact on shipping costs and freight rates.
• Container freight charges have increased as a result of the epidemic, and they are
• expected to rise much more. Pritam Banerjee, on the other hand, believes that the spike is just temporary and is mostly due to the oligopolistic dominance that select companies have over container transportation.
• He says that Russia and even Ukraine are insignificant in the container trade, and that as a result, global container freight prices should not be significantly influenced. Bulk transportation, especially oil and gas tankers, would be severely hampered by the situation. Russia and Ukraine are important traders in grains, minerals, and oil, among other commodities.
• High insurance rates and supply disruptions will cause consternation in the industry. In the event of an escalation, the Baltic Sea and the North Sea shipping traffic might be impacted as well. Insurance premiums will rise as a result of the threat of war.
• While Russia is unlikely to launch an assault in the Mediterranean, insurance premiums for ships operating on those routes, which serve as the centre of European trade, may rise as a result.

Role of Turkey in this conflict

• Turkey has authority over the entry and departure points to the Black Sea, and as a result, has a voice in the flow of ship traffic in the Black Sea. Passage over the Bosphorus Strait by Russian Navy ships has been prohibited by the Turkish government.
• Turkey is not a signatory to the United Nations Convention on the Law of the Sea, which considers the seas to be common property and permits even warships to sail across the territorial waters of a nation without being prosecuted for their actions.
• Turkey is a signatory to the Montreaux Convention, which grants it more authority over the Straits of Malacca and the surrounding waters. It is assured that commerce vessels belonging to belligerents in a conflict would have free passage, especially if Turkey is not a belligerent itself. In addition, the treaty precisely defines what constitutes a warship and what does not.
• Having stated that, any interpretation that seeks to restrict Russian commerce ship mobility will be a serious escalation of the situation and will further aggravate it.

The pandemic saw a disruption in crew change in merchant ships. Will this conflict have a similar impact?

• The war’s influence on the proportion of Ukrainian and Russian sailors in the worldwide seafarer employment is a lesser-discussed consequence. The countries of China, the Philippines, and India make substantial contributions to the worldwide seafarer workforce.
• Mr. Banerjee thinks that Russia and Ukraine combined provide about 15 percent of the world’s merchant marine personnel. When Russian and Ukrainian seamen operate aboard commerce ships, it is customary for them to work side by side.
• Their ability to board and leave merchant ships will be significantly hampered, posing a significant challenge to the worldwide maritime industry’s manpower requirements.
• The epidemic had caused crew members to be unable to move freely, and things were only beginning to normalise.

The Hindu link

https://www.thehindu.com/news/international/the-effects-of-the-russia-ukraine-conflict-on-maritime-trade/article65198645.ece?homepage=true

Question- What could be the probable impacts of Russia-Ukraine conflict on maritime trade?