Aug 7, 2023 - Energy & Environment

Black Sea strike ramps up risks for oil supply in Russia-Ukraine conflict

Illustration of a bomb falling into oil

Illustration: Sarah Grillo/Axios

Ukraine's strike on a Russian tanker in the Black Sea — a major commodity transit route — heightens the conflict's potential to further upend global energy flows.

Catch up fast: Early Saturday, the tanker Sig was reportedly hit with a seaborne drone containing explosives.

  • It followed Friday's reported Ukrainian drone strike on a Russian warship near Novorossiysk, a key oil hub that includes offloading from the Caspian Pipeline Consortium that includes Russia.

Why it matters: "If they continue, strikes on Black Sea tankers could pose meaningful risks to global supplies," the research firm ClearView Energy Partners said in a note.

  • The Black Sea is involved in an estimated 15% to 20% of oil exports from Russia, per Bloomberg.

Yes, but: Prices rose only slightly in the first trading after the tanker attack, adding to gains last week.

  • The global benchmark Brent crude is trading in the mid-$85 per barrel range Monday morning after initially climbing above $86.
  • Prices are at their highest levels since mid-April.

What they're saying: Atlantic Council energy expert Olga Khakova said it could add to insurance and shipping costs for transit through the area.

  • The war has already added a geopolitical premium to energy prices, but this creates "additional risk that's coming in as a result of Ukraine's actions."

The intrigue: Khakova sees the Ukrainian action giving Russia a "taste of its own medicine."

  • Khakova notes Moscow had initially hoped that Europe's and some other regions' reliance on Russian supplies would limit support for Ukraine.
  • She also points out Vladimir Putin has sought to "weaponize" gas exports and hold European nations hostage.
  • "Now Ukraine is taking charge and being proactive about hitting Russia where it hurts most," she said, referring to its oil exports.

What we're watching: "A key question is whether the foreign-owned tankers on which Russia depends to get its oil to market are deterred from operating in the Black Sea altogether," The Wall Street Journal reports.

The bottom line: The tanker strike was Kyiv's "strongest message to date that it is willing to target Moscow's all-important shipments of oil and fuel," Politico reports from Ukraine.

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