As the West looks to cripple Russia’s economy in the wake of its invasion of Ukraine, shipping appears to be in regulators’ sights once more.
Amid all the headline-grabbing blacklistings undertaken or threatened by the US, UK and European Union — freezing oligarchs’ assets, banning Aeroflot from British airports and potentially cutting Russia off from secure Swift financial messaging services — shipping companies have been sanctioned.
It is a trend Bruce Paulsen of Seward & Kissel expects to continue.
“Obviously there’s a lot of shipping in and out of Russia,” said Paulsen — who chairs the law firm’s sanctions practice group — on a webinar with attorneys from Simmons & Simmons discussing Russian sanctions.
“Going back to 2014, sectoral sanctions [were] aimed at oil exploration in the Arctic. I expect those things are in play and may be expanded. Shipping is highly involved in those sectors.
“I think shipping, as ever, will be in the crosshairs.”
As it stands, the US blocked Sovcomflot from issuing new debt or equity to investors there, while five ships ended up blacklisted due to their financing arrangement with Russia’s Promsvyazbank.
The sanctions came on Tuesday and Thursday as Russia pushed deeper and deeper into its neighbour, ostensibly over security concerns in Ukraine’s Donbass region near the Russian border.
Despite Moscow’s explanation, attacks have been reported all over Ukraine and forces are reportedly invading from its southern coast and eastern and northern borders.
Paulsen and Simmons & Simmons attorney Thomas Bowen expect the US, UK, EU and others to move in conjunction to levy further sanctions, although exact targets are still to be seen.
Should shipping continue to be a target — and President Joe Biden said on Thursday that US sanctions would be levied on Russian shipbuilding — it could hit tankers and LNG carriers.
VesselsValue analyst Vivek Srivastava said as much as 7.4% of the world’s tanker fleet could be at risk of blacklisting, along with 3.5% of the LNG carrier fleet.
“With cripplingly weak utilisation and freight rates afflicting both of those sectors for the past several months ... sanctions on Russian shipping companies could remove some excess supply of ships from the openly competitive market without causing as large an upward movement in freight rates,” he said in a note.
For LNG carriers, the at-risk fleet identified by VesselsValue represented 7% of total cbm miles, while tankers contributed only 2.1% of total tonne miles.
Given the reliance some countries have on Russian oil and gas, and current high prices, Srivastava said ships could present an attractive target.
“From looking at the data, one would expect policymakers to consider very carefully the impact on Western consumers and households before sanctioning oil and gas,” he said.
“However, there could be more scope to sanction the ships and companies that carry them, due to the lesser impact on global trade and exports.”
