Russia Invading Ukraine Likely Means Shippers Paying Even More for Their International Shipping.
Russia is prepared to invade Ukraine. They’ve built up troops on the border. They’re running massive military drills. And most think it is not a question of if they’ll attack but when they’ll attack. If/when Russia does invade Ukraine, international shippers will likely see their already exorbitant importing and exporting costs increase.
BACKGROUND: Tensions Increase After President Biden Basically Invites Russia to Attack Ukraine
Last week, President Biden held one of his rare press conferences. During his speech, he basically greenlighted Russia to execute a “minor incursion” on Ukraine:
“Russia will be held accountable if it invades. And it depends on what it does. It’s one thing if it’s a minor incursion, and then we have to fight about what to do and not do, etcetera. But if they actually do what they’re capable of doing with the force amassed on the border, it is going to be a disaster for Russia if they further ingrade U–further i-i-invade Ukraine [sic.], and that our allies and partners are ready to impose severe cost and significant harm on Russia and the Russian economy.”
What exactly is a minor incursion? Ukraine’s president took to Twitter after the speech to say, “We want to remind the great powers that there are no minor incursions and small nations. Just as there are no minor casualties and little grief from the loss of loved ones.”
Many tried to brush off President Biden’s words as a gaffe or by claiming he misspoke. Indeed, the Biden Administration spent the following day trying to walk back and clean up what the president had said, but the damage was already done. And if what he said about Russia committing a minor incursion against the Ukraine was just a gaffe, it seems like when Alex Alper, reporter for Reuters, followed up on the remark, the exchange would have gone differently.
Alper asked President Biden, “You said Russia would be held accountable if it invades, and it depends on what it does. Are you saying that a minor incursion by Russia into Ukranian territory would not lead to the sanctions you threatened, or are you effectively giving Russia permission to make a small incursion into the country?” At which point both she and the president chuckled, as if giving Russia permission to invade Ukraine in any manner is a laughing matter.
Laughing, President Biden responded, “Good question. Um, that’s how it did sound like, didn’t it?”
Yes, Mr. President. That’s exactly “how it did sound like.” If the statement was just one of President Biden’s many classic gaffes, this would be the moment to say something like, No. Any incursion Russia makes on the Ukraine will be met with swift retribution. Instead, President Biden continued with:
“Big nations can’t bluff, number one. Number two, the idea that we would do anything to split NATO, which would be of, have a profound impact on one of, I think, probably have an impact on one of Putin’s objectives is to weaken NATO (sic.) would be a big mistake.
“And I want to be clear with you: The serious imposition of sanctions relative to dollar transactions and other things are things that are going to have a negative impact on the United States, as well as a negative impact on the economies of Europe as well, and a devastating impact on Russia. And so, I got to make sure everybody is on the same page as we move along.
“I think we will, if there’s something that is — that — where there’s Russian forces crossing the border, killing Ukrainian fighters, et cetera — I think that changes everything. But it depends on what he does, as to the exact — to what extent we’re going to be able to get total unity on the Rus- — on the NATO front.”
Mark Santora updated a New York Times Russia-Ukraine tensions report today about the massive military drills carried out by Russian forces deployed just to the north, south, and east of Ukraine. “They involved tanks and drones, troops from regular infantry and elite paratroopers,” Santora wrote. He also reported about Russia moving ballistic missiles into combat position and Russian navy ships participating in joint drills with the Chinese fleet in the Arabian Sea.
Seeing Russia and China perform joint navy drills is scary. China and Russia have both been emboldened in their aggression against Taiwan and Ukraine, respectively, since President Biden completely botched the military pullout of Afghanistan.
How Russia Attacking Ukraine Would Make Shipping Even More Expensive for Importers and Exporters
Greg Miller wrote an excellent American shipper article about how Russia attacking Ukraine could impact ocean shipping. Not surprisingly, most of it centers around gas and oil prices.
Russia is obviously a major supplier of oil and natural gas. Sanctions on those resources from Russia is a major threat being used in attempt to deter the country from attacking Ukraine.
Ironically, President Biden has been something of a champion for Russia’s gas and oil, working to get Russia’s controversial natural gas pipeline, Nord Stream 2, completed by doing things like waiving sanctions to make it happen. This, hypocritically, after using executive order to revoke permits for the Keystone XL pipeline from Canada to the U.S., killing many, many thousands of American jobs and creating tension with one of our country’s closest allies while increasing negative environmental impact as the oil will now have to be trucked. Even Democrats criticized the president over his endeavors for Nord Stream 2, which plays into the Russia-Ukraine conflict.
President Joe Biden is facing bipartisan backlash to his administration’s agreement with Germany that allows a controversial Russian natural-gas pipeline to be completed, arguing that the deal is a boon to Moscow at the expense of Ukraine.
President Biden will no longer be such a champion of Russian oil and gas if the country attacks, supposing he doesn’t consider the attack a minor incursion and our president, in a rare act for him, actually follows through on what he says.
Miller reports the following concerning oil prices should sanctions be put on Russia for attacking the Ukraine:
If Russian exports are targeted by sanctions, the oil price effect could be extreme. “The major impact of any sanctions on Russia’s exports would be soaring crude prices, which could potentially exceed $100 per barrel,” wrote Alphatanker in a recent report. (Alphatanker was subsequently rebranded BRS Tanker.)
JP Morgan cautioned on Friday that oil prices could rise as high as $150 per barrel.
If there are sanctions, wrote Poten & Partners in a report on Friday, “Oil prices will skyrocket in the short term because Russia is such a big producer and the oil markets are already quite tight.”
… For container lines, fuel is one of the largest costs but is ultimately passed along to cargo shippers via bunker adjustment factor surcharges.
Ocean freight carriers are very good about passing expenses on to shippers. If fuel oil bunker prices rise, shippers can expect to pay for it. This is bad news for shippers who have been paying through the nose for their cargo shipments over the last two years and one more reason to hope Russia doesn’t attack Ukraine.