In the war at sea between the U.S.-NATO alliance and Russia, the Russian shipping company Sovcomflot says its future has never been better. The U.S. State Department directing the sanctions campaign against Russian oil and gas exports says the future for the Russian trade is never again. Both of them are right.
The reason for this paradox is that the sanctions war has transformed the global movement of oil and gas tankers—the routes, ports, insurance, contracts, pricing, certification, and recording. The major commercial and state fleets have split into two blocks, ending the unified global tanker market and returning to the conditions of secrecy, smuggling, and bypass port hubs last seen in Europe when Napoleon attempted to imposed his blockade of British merchantmen in what was called the “Continental System.” That was more than two hundred years ago, between 1806 and 1814.
France did not recover from the damage the over-confident Napoleon did to the French position in Europe’s seaborne trade. Napoleon multiplied the cost of his misjudgement by deciding that, in order to enforce his blockade, he should invade Spain, Portugal and Russia, and close their ports. Russia then buried Napoleon twice—once in Moscow in 1812, then in Paris in 1814, before he and the French army were finished off at Waterloo. This time round, the U.S.-NATO blockade of the Russian maritime trade is Napoleonic in the obviousness of the miscalculation; it is also Napoleonic in the magnitude of losses on the NATO side—and the acceleration of profits on the Russian side.
Released on August 28 and expressed in discreet language, Sovcomflot’s financial report for the six months to June 30, this year, says: “Revenues from tanker business segments (transportation of crude oil and petroleum products) are supported by favorable market conditions against the background of increased demand for tanker tonnage, taking into account the changing geography of international trade in oil and petroleum products. Despite the presence of a seasonal reduction in freight rates in the summer, the company believes that the market fundamentals, including the limited growth of the global tanker fleet due to the small number of orders for the construction of new vessels, suggests a high probability of stability in the medium term of freight rates at a level above the historically average.”
“Favorable market conditions” is Sovcomflot’s phrase for the U.S. and NATO sanctions, first imposed on Sovcomflot’s financing and payment operations in February 2022, and escalated this year in European Union (EU) and U.K. sanctions targeting Dubai and Hong Kong fleet management companies. The reference to “changing geography” means what shipping analysts from London to Oslo, Piraeus to Singapore acknowledge privately: “The war is good, very good for the oil tanker companies which can run the gauntlet of the Americans,” says a Greek source.
Sovcomflot is now confidently predicting the worldwide split between the Russian and U.S.-NATO fleets will continue for the foreseeable future. “Despite the presence of a seasonal reduction in freight rates in the summer, the company believes that the fundamental market fundamentals, including the limited growth of the global tanker fleet due to the small number of orders for the construction of new vessels, suggests a high probability of stability in the medium term of freight rates at a level above the historically average.”
Never better—that’s what the last phrase means in Russian.
Struggling but failing to prevent this is the U.S. enforcer of sanctions on Russia’s energy trade, Assistant Secretary of State Geoffrey Pyatt. “European decoupling from Russia,” “diversify energy supply routes,” and “open and transparent energy markets” are the slogans Pyatt has been promoting. “Russia is never again going to be seen as a reliable energy supplier.”
The shipping money is now betting on a different future from the one Pyatt is trying to manage – what’s reliable about this is its high profitability for shipowners, and not just the Russians. Sovcomflot is reporting it has never had so much cash on hand, so little debt. The Ebitda to debt ratio is just 0.4x. “The gearing is extremely low,” a London insider comments. “The bank debt plus $350 million in Chinese bonds (2.5 billion yuan) are practically nothing. Earnings are high even with the reduced [fleet] tonnage. Overall, if these figures are reliable and there is no concealment of Russian bank facilities, SCF is in perfect shape.”
Source: MarineLog