UK bans Russian vessels, EU mulls more sanctions and Maersk stops calling at Russia’s ports

MADRID (ICIS)–The EU could soon follow the UK’s lead and ban Russian vessels from docking at its ports as Russia’s invasion of Ukraine entered its sixth day.

The UK said late on Monday it would not provide access to any ship that is owned, controlled, chartered or operated by any person connected with Russia or any designated Russian citizen, ships flying the Russian flag or those registered in Russia.

This maritime transport sanctions follow the UK and the EU’s decisions to ban Russian aircraft from flying in their air space.

The EU has yet to publish an official decision on Russian vessels, but a spokesperson for the European Commission – the EU’s executive body – told ICIS that the 27-country bloc is mulling more sanctions which will be announced in coming days.

“Such a ban [in the EU for Russian vessels] is not currently in force. This said, we continue working on further sanctions which will be announced in due course,” the spokesperson said.

Global shipping major Maersk has decided to stop calling at Russian ports; the company decided to stop calling at Ukrainian ports on 25 February, soon after the war started.

“As the stability and safety of our operations is already being directly and indirectly impacted by sanctions, new Maersk bookings within ocean, air, and intercontinental rail to and from Russia will be temporarily suspended, with the exception of foodstuffs, medical and humanitarian supplies (bar dual-use items),” said the company.

It added that global supply chain flows are also starting to be affected by the war in Ukraine and sanctions against Russia with delays and the detention of cargoes by customs authorities across various trans-shipment hubs, “resulting in unpredictable” operational impacts.

“Please expect significant delays as countries such as the Netherlands, Belgium, and Germany [who] are holding back vessels en route to Russia in search of restricted commodities, primarily dual-use items,” said Maersk.

“The inspections of export and transshipment cargo bound for Russia are related to implementing procedures to comply with sanctions and export controls recently imposed by different jurisdictions.”

In related shipping news, the Suez Canal Authority (SCA) said on Tuesday that it was hiking rates to navigate the key shipping route between Europe and Asia by as much as 10% in some cases.

The SCA, however, did not make any mention of the Russian invasion of Ukraine in its public statement about the price increases, which add yet more problems to the logistics sector which has suffered from pandemic-induced trouble for more than a year now.

In a circular, the SCA said that both laden and ballast chemical tankers and other liquid bulk tankers transiting through the Suez Canal in both directions would be subject to the 10% price hike, effective 1 March.

The SCA justified what it described as a “surcharge” due to “significant growth in global trade, the improvement of ships’ economics, the Suez Canal waterway development, and the enhancement” of the transit service.

France’s energy and petrochemicals major said on Tuesday that it will stop funding new projects in Russia, while Dutch peer Shell said on Monday that it will exit joint ventures with Russia’s gas major Gazprom.

UK energy major BP also said it will divest its 20% stake in Russian crude major Rosneft.

WAR RAGES ON
Overnight, heavy bombing in east Ukraine – including on the Russian-majority city of Kharkiv, the second largest in Ukraine with 1.5m residents – was combined with a large Russian military convoy heading towards the capital Kyiv, according to intelligence from western countries.

Around 500,000 people have fled Ukraine into neighbouring EU countries as the situation is fast worsening in many Ukrainian cities.

Talks between Russian and Ukrainian delegation on Monday ended up with no agreement, although they committed to meet again.

However, the heavy bombing of civilian areas in Kharkiv and other cities prompted the Ukrainian government to accuse Russian President Vladimir Putin of war crimes, filing an application against Russia at the International Court of Justice (ICJ) in The Hague, the Netherlands.

European stock markets on Tuesday posted sharp falls as sanctions against Russia are set to hit the European economy the hardest.

Frankfurt’s DAX exchange and Paris’ CAC 40 were down around 3% as of 14:30 CET, while London’s FTSE 100 was down 1.20%.

The Stxe 600 exchange, comprising the largest European chemicals producers, was down by 1.25%.

The losses on Tuesday follow three volatile sessions since 24 February, when the war broke out; that day, stocks posted heavy falls and crude oil futures rose sharply. On Friday (25 February) stocks returned to the gains at the week’s closing but posted losses again losses on Monday.

Crude oil is comfortably over the $100/bbl mark, but far from the highs posted earlier. On Tuesday, Brent futures for delivery in May were trading at $102.02/bbl during European afternoon trading.

THE COST OF WAR IN EUROPE
As the war could become a longer-term conflict, financial analysts are upgrading their estimates for GDP growth in 2022, the year when the global economy was expected to be free from the worst economic effects of the pandemic.

On Tuesday, analysts at London-based Oxford Economics said the war in Ukraine could cause GDP globally to be capped by 0.2 percentage points.

“The economic consequences are dramatic for Ukraine and Russia, and significant for Europe. But unless there is a serious escalation, the effects on the US, China, and most of the emerging world should be limited,” said the analysts.

“Russian financial markets are under heavy pressure from the West’s sanctions, which will damage Russia’s GDP significantly – by as much as 4%-6% relative to a pre-crisis baseline in a plausible downside scenario.”

However, for Ukraine and only six days after the invasion started, the economic consequences for the already-beleaguered economy could be large, with its economy potentially halving in size.

“The effect on Ukraine’s GDP will likely be worse still. Evidence from previous war-ravaged economies (featuring massive infrastructure damage) suggests a GDP slump of up to 50%-60% is possible,” said Oxford Economics.

“Most of these conflicts dragged on for years, but even a shorter conflict like that involving Serbia in 1999 resulted in GDP there falling 9%. So, a double-digit decline in Ukraine’s output looks quite feasible. A default or rescheduling of part of Ukraine’s foreign debt is also priced in.”

Front page picture: Exchange office in St. Petersburg showing the Russian rouble’s sharp falls
Source: Valya Egorshin/NurPhoto/Shutterstock 

Focus article by Jonathan Lopez