Should the peace negotiations to end the war in Ukraine yield positive results, a key variable affecting crude oil flows could be removed. Shipping brokerage firm Gibson noted in its latest weekly report that while negotiations are ongoing, the path to peace remains fraught with uncertainty, and the extent to which trade relations can return to pre-war levels is still unclear.
Gibson stated that tanker ton-mile demand increased by 5.4% following the outbreak of the conflict in 2022, and rose by another 7.2% in 2023 as the U.S. embargo on Russian oil and the price cap mechanism took effect. While not all of this growth was attributable to these factors, the majority—particularly in 2023—was indeed linked to them. Since then, the growth in ton-mile demand has slowed, with only a 1% increase in 2024 and a 1% decline year-to-date this year.
However, according to the brokerage's analysis, even if a peace agreement is reached, whether trade flows can return to "normal" remains highly contentious. The current leaders of the United Kingdom, France, and Germany, as well as EU member states like the Baltic nations, may strongly resist any shift in trade back toward Russian energy, especially if Ukraine agrees to an "unfavorable deal."Furthermore, the specific details of the 19-point counter-proposal, as well as whether Europe or even Russia participated in its drafting, remain unknown. As a result, Europe's future stance toward Russia and its energy exports remains ambiguous.
Assuming any agreement involves the lifting of sanctions, a certain degree of normalization in trade flows could be achieved. However, the key question is whether European refineries will be able to resume imports of Russian crude oil. If this were to happen, trade patterns could gradually move closer to pre-war norms over time, though not completely reverting to them.Next year, European refining capacity will be 500,000 barrels per day lower than in 2022, and the closure of German refineries further reduces the likelihood of Russian pipeline crude returning to previous levels. Additionally, the market share gained by other producers—particularly the United States—in Europe would need to be displaced.
In the refined products sector, Europe’s rush to replace Russian supplies in 2023 with products from the Middle East, India, and the U.S. led to a surge in tanker ton-mile demand. Meanwhile, Russian refined products originally destined for Europe were redirected to new markets in Latin America, Africa, and Asia, resulting in significant inefficiencies but benefiting tanker owners and traders.Refining margins in Europe and globally initially received a boost, but if Russian oil supplies return to Europe—especially if Ukraine halts its attacks on Russian refineries—these margins would come under pressure. Consequently, long-haul imports would likely decline, and the overall impact would be a significant reduction in ton-mile demand.In this context, the response of European leaders will be crucial. If Europe lifts its embargo on Russian oil, it would have a substantial negative impact on tanker demand.
According to Gibson's analysis, in terms of crude oil transportation, Aframax tankers were initially the biggest beneficiaries of this conflict, followed by Suezmax tankers, while VLCCs lost market share. However, the recent situation has changed, as stricter sanctions have forced India to increase crude oil imports from non-Russian suppliers, thereby benefiting VLCCs.
Gibson stated that in the product tanker sector, LR2 and MR vessel types saw the most significant growth in ton-miles, as the refined oil price cap policy has begun to take effect. Given that MR vessels can be repurposed for exporting Russian refined oil to Europe, they face relatively less adverse impact from the reversal of trade flows. MR vessels in the U.S. Gulf are also expected to regain a share of the Latin American market.
For LR2 vessels, the outlook is less optimistic, as they will be directly impacted by the decline in trade volume from the East to Europe. Gibson concluded that the oil shipping market has once again entered a period of high uncertainty. Regardless of whether Ukraine and Europe participate, U.S.-Russia negotiations could lay the groundwork for ending hostilities.
The final form of the solution remains undetermined, and more importantly, Europe's policy toward Russia and its energy export strategy are also unclear. Meanwhile, Europe is preparing its 20th round of sanctions, and while Trump intends to reintegrate Russia into the global economic system, the possibility of further U.S. sanctions cannot be ruled out.
