A potential peace in Ukraine could, in theory, return the tanker market to some sort of normalncy. In its latest weekly report, shipbroker Gibson said that “tanker tonne miles (crude/DPP/CPP) grew 5.4% in 2022 following the invasion and by 7.2% in 2023 after the implementation of the European/US embargo on Russian oil and oil price cap framework. Whilst not all of this growth was attributable to the war, the majority was, particularly in 2023. Tonne mile growth has since slowed, gaining just 1% in 2024, and contracting 4% for the year to date”.

However, “it remains heavily debated whether trade flows might return to “normal” in the event of a peace deal. The current leaders of the UK, France, and Germany, as well as the Baltic and other EU States might try particularly hard to prevent a swing back to Russian energy trade, especially in the event of a “bad deal” for Ukraine. Yet, with President Trump effectively ruling out Russia giving up all its territorial gains, as well as Ukraine joining NATO, concessions appear to already be on the table. If it is assumed that any deal is likely to involve sanctions relief, then some normalization in trade flows is possible. The key, however, would be whether European refiners are allowed to return to Russian crude supplies. If this were to be the case, then over time trade flows might shift to resemble something similar (but not the same) as their pre-war patterns. Next year, European refining throughput will be 500kbd lower than in 2022, whilst closures in Germany are likely to offer reduced scope for Russian pipeline flows to return to previous levels. Equally, other producers (notably the US) have captured market share in Europe and will need to be displaced. For the products market, the impact could be arguably more significant than for the crude sector. CPP tanker tonne miles surged as Europe scrambled to replace Russian supplies in 2023 with cargoes from the Middle East, India, Far East and United States. At the same time, Russian cargoes which typically traded into Europe were pushed to new markets in Latin America, Africa and Asia creating substantial inefficiencies to the benefit of tanker owners and traders. Refining margins in Europe (and worldwide) also benefitted initially and would likely come under pressure if Russian supplies return to Europe. As a result, not only could we see lower domestic refining activity in Europe, but also lower long haul imports. Refiners in the US, who have lost some market share into the Americas might gain that back, but the overall impact would still be significantly lower tonne miles”.

“As such, in terms of tonne miles, the reaction of European leaders is of utmost importance. If Europe lifts its current embargo on Russian oil, this will have significant negative implications for tanker demand. If sanctions are lifted, discounts for Russian oil will narrow and Indian and Chinese crude buyers will see more competition for Russian cargoes. Depending on willingness from Europe to resume Russian imports, India and China could be incentivized to increase intake from elsewhere (likely West Africa, the Americas and Middle East) depending on prices and refining margins for specific grades”, Gibson said.

Impact on tanker sizes
The shipbroker added that “for crude tankers, Aframaxes, followed by Suezmaxes were the greatest beneficiaries of the conflict, whilst VLCCs lost market share. As major VLCC destinations, India and China might have preferred to continue to use larger tankers, but given Russian port restrictions, were required to switch to Aframax and Suezmax tonnage. Thus, any increase in Indian or Chinese buying from outside Russia, is likely to benefit VLCCs more than other sizes, given the cargoes are likely to originate in West Africa, the Americas or the Middle East – key VLCC markets. In contrast, smaller crude carriers are set to lose, with Aframaxes the most vulnerable.
For clean tankers, LR2s and MRs saw the strongest gains in tonne miles as the refined products price cap came into effect. MRs may see less downside from reverting trade flows, given they could be redeployed on Russian exports to Europe, whilst MRs in the US Gulf would also gain back some market share in Latin America. However, for LR2s it is difficult to find a positive outlook, with LR2s feeling the brunt of any decline in trade from the East to Europe”.

 

Impact on the dark fleet
According to Gibson, “however, a return to a “new normal” is not entirely negative. Since 2022, the dark/grey/illicit fleet has grown to over 1160 ships, more than 63% of which are now sanctioned. More than 92% are over 15 years of age and critically, more than 62% are over 20 years old. It’s important to note that many of these are engaged in Iranian or Venezuelan trade (particularly in the VLCC and Suezmax segments), so will not be impacted by a potential lifting of Russian sanctions. Still, this clearly indicates that it will be very difficult for the >20 year old ships currently solely shipping Russian barrels, to resume trading in the mainstream market. The hedge therefore for mainstream shipowners, is that whilst they may see tonne mile demand fall, any mainstream player returning to Russian trade is unlikely to use >20 year old tonnage with a chequered trading history. In the Handy sector, where the fleet has rapidly aged, any increase in demand for sub 20 year old ships might prove problematic given many were sold off to serve trade outside the oil price cap framework. As such MRs may pick up extra demand here”.

Gibson concluded that “once again, we now face an uncertain period where negotiations between the US and Russia, with or without Ukrainian and European involvement, could lay the foundations for an end to hostilities. It is impossible at this stage to determine what the final settlement might look like, and most importantly, what Europe’s policy towards Russia and its energy exports might be. If Trump loses patience with Russia, then the tanker market may indeed need to brace for another round of sanctions”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide