October 7, 2022
Tanker Fleet Worldwide
The number of oil tankers worldwide, by tanker type, ranges from 860 for Very Large Crude Carriers (VLCC’s) with a capacity of about 2 MM Bbls to 670 Aframax tankers (capacity of 600 M Bbls) and 580 Suezmax tankers (capacity of 1 MM Bbls).
Sovcomflot Tanker Fleet (Estimate for Summer 2022)
The Russian Sovcomflot tanker fleet consists of 2 VLCC, 42 Aframax and 15 Suezmax, and 61 Product ships (used to transport refined products) & Shuttles (transports oil from offshore platforms to the coast).
If sanctioned oil needs to be redirected to Asia (primarily India and China) there will be a need for an additional 120 vessels of varying sizes.
As part of the sanctions against Russia, the EU bans insurance and reinsurance of ships caring Russian oil and the EU insurers have until the end of this year to implement the ban. Approximately 95% of the world’s oil tanker fleet is insured by the International Group of Protection & Indemnity Clubs in London and some firms based in continental Europe. Therefore, issuing insurance to shipping companies is relatively easy to control. In addition, classification organizations such as Lloyds and ABS have refused to provide services to Russian clients.
Denying shipping insurance is considered to be one of the most efficient means to exert pressure on the Russian oil industry. Shipping oil without insurance is extremely risky due to the potential of a multibillion-dollar liability in the event of a spill or accident. In reality, denying insurance is only one of the many sanction tools and may not be as effective if used alone. It was one of the very effective components of the Iranian oil sanctions.
Russia’s largest shipping company is Sovcomflot. Prior to March 2022, the company had about 120 tankers and have ordered new ones. The company itself is under western sanctions and is therefore unable to raise funds in western markets. To avoid an insurance ban on June 13, Sovcomflot switched all insurance to Russian-based Ingosstrakh insurance company. On 10 June 2022, the Russian National Reinsurance Company announced it would reinsure Russian ships including Sovcomflot’s fleet. In fact, the insurance and reinsurance of the Russian tanker fleet would be funded by the Russian federal budget. Sovcomflot relocated the management of its fleet to its subsidiary: Dubai-based SCF Management Services. Additionally, the Indian Register of Shipping announced that it would provide safety certification for several dozen ships managed by Sovcomflot. Finally, in order to pay its debt, Sovcomflot sold an unknown number of its ships although they claim they sold older ships which are unusable due to the sanctions.
As a result of these transactions, Sovcomflot will be able to operate and ship oil to Asian markets even with the insurance ban. However,
- Using the Russian federal budget for reinsurance and insurance of ships essentially increases the cost of oil and reduces state oil revenue.
- Russian ports do not allow VLCC’s due to their size so Russian oil shipped to Asia on VLCC’s would need to be loaded from other smaller ships (Ship-to-Ship); prior to the sanctions, it occurred in European waters near the Danish or Dutch coasts, for example. As such, most oil shipped from Russia is done utilizing the Aframax and Suezmax ships. Aframax ships carrying Russian crude oil to China and India represented approximately 5% of the total 2021 demand of this size class; that number escalated to 14% in April creating a challenge for buyers to find ships of this class. It is possible that these ships could come at a higher rate which would ultimately affect the differential between Brent and Russian crude.
- Russian crude oil is transported by ships controlled by Greek shipowners (51%), Russians (19%) and Chinese (6%). Even if Russian shipowners were able to obtain insurance and re-insurance, it is unclear how shipowners from other countries would be able to manage it.
- The Sovcomflot fleet, as is, is inadequate to carry sanctioned amounts of oil which needs to be redirected from Europe to Asia. IHS estimates that to divert Russian oil shipped from Europe to China and India will require about 120 vessels of varying sizes (40-VLCC, 30-Aframax and 50-Suezmax). Although the number of ships required is double Sovcomflot’s current fleet, it represents considerably more capacity due to the sheer number of VLCC’s. While these ships might be available, they still need to be insured and reinsured outside of the International Group of Protection & Indemnity Clubs.
Additional Fleet Required
Sources:
Incorry’s Estimates
Moscow Times: https://www.themoscowtimes.com/2022/05/13/russias-sovcomflot-sells-tankers-as-sanctions-loom-wsj-a77666
Sovcomflot: https://sovcomflot.ru/en/