January 30, 2024

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Amid Red Sea tensions: Asian fuel exports to Europe hit, Russian oil cargoes sail strong | Business News

4 min read

Even as west-to-east crude oil flows — mainly Russian oil headed to India and China — via the Suez Canal have not been majorly impacted by the Red Sea troubles, refined petroleum product exports to Europe through the crucial trade route have seen disruptions, according to commodity market analytics firm Kpler. The trend is significant for India as the country is a top destination for Russian crude and also an important source market for fuels, particularly aviation turbine fuel (ATF) or jet fuel, for Europe.

Over the past couple of months, a number of cargo ships have come under attack from the Iran-backed Houthi rebels of Yemen around the Bab el-Mandeb strait, which leads to the Red Sea and Suez Canal, forming the shortest, albeit narrow route to the Mediterranean Sea and beyond from the Arab Peninsula, North-East Africa, and the Arabian Sea. The route is seen as an important artery of global goods and energy supplies. The Houthis have so far claimed that they are targetting vessels with links to Israel and its allies in view of its military offensive in Gaza.

“West-to-east flows via the Suez Canal, mainly made of Russian crude, have been less impacted,remaining steady at around 1.4 Mbd (million barrels per day). So far this month all cargoes shipped to Asia from Western Russian ports have travelled via the Suez Canal,” Kpler said in a report. It also noted that Russian refined fuel cargoes headed to Asia via the Suez Canal, too, appear to be “undeterred by the escalating hostilities in the Red Sea”.

While Kpler did caution that the recent attack on a tanker carrying Russian naphtha could see tanker transits through the Red Sea fall relatively more steeply in the coming weeks, it also noted that there has been no immediate change in tanker approaches since the attack and four tankers carrying Russia’s flagship Urals crude passed through the Bab el-Mandeb strait with another three heading south through the Red Sea.

As reported earlier by The Indian Express, tankers carrying Russian crude have largely been immune to the security situation in the Red Sea region, which has forced a number of major shipping lines and Western oil companies to shun the route and instead take the much longer route around Africa via the Cape of Good Hope. Higher risk premiums and longer voyages have hit movement of goods between Asia and Europe in terms of higher freight rates.

Festive offer

Russian oil cargoes departing from the North Sea and Black Sea ports take the Suez Canal-Red Sea route to reach Asia, specifically India and China, which are currently the biggest buyers of Russian crude. Oil and shipping analysts do not foresee tankers carrying Russian oil coming under attack in the region as Russia is perceived as Iran’s ally. The Houthi rebels are widely believed to be backed by Tehran. In contrast, crude oil flows from West Asia to Europe via the Suez Canal have seen a “substantial decline since October 2023”, Kpler said.

But unlike India’s inbound cargoes of Russian crude, tankers hauling refined fuels from India and other parts of Asia to Europe, do not appear to be comfortable transiting the Suez Canal. “Last year, 3.5 Mbd of refined product flows was shipped via the Suez, a record annual high, making up 14 per cent of total refined product flows. Jet fuel is the most exposed, with 33 per cent of exports utilising the canal. Flows of these products are already disrupted with some cargoes travelling via the Cape (of Good Hope), while others are waiting in the Arabian Sea. The surge in freight rates has also closed arbitrages which will restrict long haul flows to Europe,” Kpler said, but did not quantify the impact.

The majority of Indian and Middle Eastern ATF exports to Europe are now going around Africa, adding 15-20 days to the voyage length. In the aftermath of Russia’s February 2022 invasion of Ukraine, as Europe started shunning Russian crude oil and fuel, India emerged as the largest buyer of Russian seaborne crude and also a major fuel supplier to Europe with all such shipments passing through the Red Sea

“The main jet (fuel) trade flow is from the Middle East and India to Europe, averaging 400 kbd in 2023. Europe is the most reliant on the flow of products through the Suez with 1.3 Mbd arriving via this route, 24 per cent of the total. This share has increased in recent years after Europe banned the import of Russian oil products, forcing a greater volume…to be sourced from the east of Suez,” Kpler said.

According to the agency, Suez Canal transits by commercial cargo vessels in January has been 30 per cent lower from November levels, with liquefied natural gas (LNG) flows down a whopping 73 per cent, liquefied petroleum gas (LPG) flows down 65 per cent, dry bulk down 27 per cent, and tankers—used for liquids like crude and fuels—falling 23 per cent. Unlike crude oil, most of India’s LNG and LPG imports do not transit the Suez Canal.

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