Major geopolitical events with tragic human costs have major effects on shipping rates — sometimes negative but very often positive. As the Russia-Ukraine crisis escalates, scenarios for higher tanker, dry bulk and container shipping rates that were considered low probability just a few weeks ago suddenly look more plausible. As Cleaves Asset Management CEO Joakim Hannisdahl put it on Wednesday, “War is a bad thing, except for shipping.” Tanker markets On Wednesday, the U.S. imposed blocking sanctions on two state-owned Russian banks, development bank VEB and military bank PSB. Sanctions were also announced by the EU, U.K. and Japan. Future sanctions could theoretically target Russian energy exports. “Russia’s oil and gas exports would be firmly in the firing line of any sanctions, given that they are the lifeblood of Russia’s economy, accounting for around 40% of Russia’s revenues,” said brokerage BRS on Monday. During a roundtable earlier this month, attorneys at Seward & Kissel speculated on how such energy sanctions might play out. Associate Andrew Jacobsen noted that Russian energy interests have been targeted by U.S. sanctions since the 2014 Crimea annexation, but by so-called sectoral sanctions with narrow targets that specifically exclude shipping, not blocking sanctions that prevent all business with U.S. entities, or that involve U.S. currency. Blocked entities are placed on the Specially Designated Nationals (SDN) list. “For the shipping industry, the biggest focus is going to be the energy sector and in particular, the state-owned entities that have largely escaped major U.S. blocking sanctions,” said Jacobsen. “There are numerous Russian state-owned entities — Gazprom, Rosneft, Novatek and others — that are on the sectoral sanctions identification list but not on the SDN list. We could see the specific exemption for transportation taken out, so OFAC [Office of Foreign Assets Control] or other regulators could take the position that if you are involved in transporting oil that has been extracted in the Russian Federation, that would be viewed as sanctionable activity — which would really change the game for the shipping industry.” Such sanctions, which already target transporters of Iranian and Venezuelan oil, can have far-reaching and unintended market consequences. In September 2019, the U.S. sanctioned Cosco Dalian, a subsidiary of Chinese shipping giant Cosco, for transporting Iranian oil. Because of Cosco’s opaque business structure, charterers abstained from booking cargoes on all Cosco tankers, not just those of the sanctioned Dalian subsidiary. That effectively removed 140-150 tankers from the global charter market overnight, causing spot rates to surge above $100,000 per day and, in the process, hiking transport costs for U.S. crude exports. Dry bulk markets Military action could curtail ship movements in the Black Sea, a key transit point for dry bulk exports. In fact, Russian military exercises have already done so. VesselsValue analyzed ship-movement data and found that Russian naval maneuvers “visibly impacted traffic.” Russian and Ukrainian waters of the Black Sea and Sea of Azov were designated “listed areas” by the insurance industry’s War Risk Council on Feb. 15, meaning higher war risk insurance premiums. According to BRS, the Black Sea area was the world’s second-largest grain-exporting region in 2021, with 111.2 million tons of cargo; Russia and Ukraine accounted for 30% of global wheat exports, and Ukraine accounted for 16% of global corn exports. Ukrainian corn could be first in the line of fire. BRS noted that by the end of January, Ukraine had already exported 71% of wheat predicted for the current marketing period but just 32% of its predicted corn exports. Agribulk exports face risks on land as well, not just at sea. “An attack or land grab by Russia could sharply reduce grain production as farmers flee the conflict, agricultural infrastructure and equipment are damaged, and the region’s economy is paralyzed,” said BRS. “A substantial part of Ukraine’s most productive agricultural land is in the east and therefore vulnerable to any potential Russian attack.” According to Braemar ACM Shipbroking, this landside risk could affect the coming wheat marketing season. “The main grain-producing regions are notably located along the Russian border,” said Braemar, which pointed out that the military threat coincides with the beginning of the spring wheat planting period. In general, analysts and brokers have cited potential rate upside for certain size categories of both dry bulk and tanker shipping, on the premise that conflict-induced trade disruptions would force replacement imports to travel longer distances, thus requiring more ship supply. Maritime Strategies International (MSI) said in a new dry bulk report: “In the event of war, grain and coal markets would be disrupted. The impact depends on the timing … but MSI would expect short-term disruption and increased demand for longer-haul trade — European long-haul coal imports would be strong, for instance. Overall, the impact of war would be positive for dry bulk freight markets.” Container markets The container shipping sector might seem far less exposed to Russia-Ukraine crisis impact than tanker and dry bulk shipping. But Lars Jensen, CEO of consultancy Vespucci Maritime, sees a major risk ahead, one that could prolong congestion and keep freight rates historically high for longer. During FreightWaves’ global supply chain event last week, Jensen recounted how Maersk, then the world’s largest shipping line, was hit by a massive cyberattack in 2017 and was “completely off the grid for roughly a week, and it took them a few weeks to get back up and running.” Maersk was “purely collateral damage” in a cyberattack targeting Ukraine that Western intelligence blamed on Russia. “Fast forward to the conflict as it is now. If we see sanctions, Russia will very likely respond with cyberattacks. There is a very real risk that critical infrastructure might be targeted, and obviously shipping lines, ports and terminals are critical infrastructure. “The situation now is markedly different than in 2017. In 2017, we could essentially lose the largest carrier in the world for a week and it didn’t cause any major problems in the supply chains. There was plenty of buffer capacity: ships, terminals, everything. Right now, we have literally zero buffer capacity. We have insufficient ships because they’re caught in queues. We have ports and terminals that are horribly congested,” he said.  “If — and I stress if — all the ports and terminals have done their jobs very well and boosted their cyber defenses over the last five years, it still doesn’t render them impermeable, but they will have a good backup plan, which means they could be fully up and running again in two, three or four days. “But think about that in the current environment. Just taking one major port out of action for two or three or four days, on top of what we are already dealing with, will have major global ramifications on the supply chain.”  Vespucci Maritime’s Lars Jensen on container shipping threat: