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Ukraine Attack on Russian Warship Disrupts Oil and Grain Export Hub

Novorossiysk Sea Port, Russia, is one of the largest ports in the Black Sea basin. Photo Credit: Wikipedia

Ukraine Attack on Russian Warship Disrupts Oil and Grain Export Hub

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August 4, 2023

By Bloomberg News (Bloomberg) Russia’s commodity export hub of Novorossiysk in the Black Sea was closed for several hours on Friday after a Ukrainian drone attack on a naval vessel, the first time that operations at the key shipment point for oil and grains have been disrupted by the war.

The overnight assault by two naval drones was repelled without damage to port facilities, according to the Russian Defense Ministry. Ukraine’s state security service was responsible for the attack that targeted and disabled the Russian landing ship Olenegorsky Gornyak, according to a security official familiar with the matter.

Russia’s Defense Ministry didn’t respond to questions about the status of the ship.

The incident highlights the growing risk to the flow of raw materials from the Black Sea. Moscow is seeking to further cripple Ukraine’s ability to export grains, while Kyiv has threatened commensurate action against Russia. 

“This attack on Novorossiysk seems to have been very limited, but the risk of further attacks on Russian and Ukrainian ports and export infrastructure will lead to a lot of volatility,” said Carlos Mera, an analyst at Rabobank. 

Wheat futures rose 2.75% to 644.3 cents per bushel and Brent crude advanced 0.6% to $85.65 a barrel as of 2:50 p.m. in London. 

In the almost 18 months that Russia has waged its war against Ukraine, its ability to export commodities has been affected principally by sanctions. Europe banned most imports of the country’s oil, while the G-7 imposed price cap that restricts Moscow’s petroleum sales.

There is one notable exception — two Russian gas pipelines to Europe called Nord Stream and Nord Stream 2 that were damaged by explosions in September 2022. The conduits were already shut down at the time of the blasts but the attacks removed a key point of Moscow’s leverage as it sought to use gas exports as an economic weapon against Europe. The New York Times subsequently reported that a “pro-Ukrainian group” was responsible for the blasts.

Russia is the world’s top wheat exporter and Novorossiysk ranks as one of the main shipment points. The country is in the midst of a second bumper harvest, making this a crucial time for getting grain onto global markets.  

The drone attack adds to the tumult faced by the Black Sea crop trade after Russia pulled out of a deal last month that had established a safe corridor for grain shipments from three Ukrainian ports. The nation’s exports are now confined to smaller river and land routes, and Russia has launched multiple attacks on port infrastructure in the weeks since the pact ended.

Novorossiysk also ships oil, coal and fertilizer. Nearby is the export terminal for the Caspian Pipeline Consortium, which loads tankers with about 1.3 million barrels a day of crude from fields in both Russia and Kazakhstan. The latter country has become a crucial sources of oil for Europe after it banned imports from Russia. 

Russian authorities briefly halted marine traffic around Novorossiysk, but ship movements resumed at 10:39 a.m. Moscow time on Friday, CPC said in statement. During the disruption, the oil terminal continued to load tankers that were already moored. 

“We currently assess the risks of supply disruptions as minimal,” said Viktor Kurilov, senior oil markets analyst at consultant Rystad Energy A/S. “Ukraine has attacked military targets and has not yet attacked civilian infrastructure” because doing so would be counterproductive for its allies, he said.

© 2023 Bloomberg L.P.

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