Ukraine’s Drone Attack Hasn’t Yet Jolted Insurance Costs for Black Sea Oil Carriers

A drone attack on a Russian oil tanker and a warning from Kyiv that more could follow has so far had little impact on insurance costs for oil and commodity carriers in the key Black Sea region, as rates were already unusually high.

As of Monday, the extra insurance premium ships pay when entering risky areas was stable compared with levels prior to the weekend attack, according to two people familiar with the market. The figure is closely watched by traders and shipowners alike for whether it becomes too costly for vessels to enter Russian Black Sea ports such as Novorossiysk.

Ukraine’s seaborne drone attacks on a naval ship and oil tanker put Russia’s commodity exports via the Black Sea at risk for the first time since the war began last year. The route accounts for most of the grain and between 15% and 20% of the oil that Russia sells on global markets every day.

Ukraine Black Sea Attacks Signal Expanding War; Russia Insurance Costs Likely to Rise

So far, there haven’t been significant changes in freight and insurance rates for most Black Sea grain shipments, said Bilal Muftuoglu, a director of dry-bulk research at shipbroker Howe Robinson Partners. The concern could grow if a commercial or grain vessel in the region were to be struck, he said. Ukraine said the tanker involved in the attack was delivering fuel to Russian forces in Crimea’s Kerch strait.

Shipowners pay what is known as an additional war risk premium when they enter the world’s most dangerous waters. That figure has ballooned since Russia invaded Ukraine last year, and was recently about 1% of a vessel’s insured value, compared with a just a fraction of a percent usually.

After the attacks, there were some indications that a larger-than-normal number of oil tankers were waiting further away from Russia’s ports before potentially heading to load. Nine vessels signaling Novorossiysk as a destination are currently anchored between Sinop and Samsun in Turkey. That’s up from a peak of about three ships during July.

Despite the increase, there is no indication that the vessels won’t ultimately sail to their destination, and it isn’t uncommon for some ships to wait near the Turkish coast before heading to Novorossiysk or the nearby Caspian Pipeline Consortium crude export terminal.

–With assistance from Sherry Su.

Photograph: Bulk carriers in the Black Sea. Photo credit: Andrei Pungovschi/Bloomberg