Military tension in the Black Sea is similar to the Iran-Iraq war threats to oil trade

Over the weekend a huge fire broke out at Russia’s key Black Sea Novorossiysk port that engulfed the cargo area and sent plumes of black smoke into the sky that were visible from miles way.

It is not clear what started the fire, but observers speculate that it could have been either a Ukrainian missile strike or secret services black op, as the port, a crucial oil export terminal, has come into Ukraine’s crosshairs recently.

Tensions in the Black Sea between Russia and Ukraine have escalated rapidly in the last few weeks. Ukraine disabled a Russian warship in the Russian port of Novorossiysk on August 4. Russia responded by tightening its naval blockade and fired across the bows of a merchant cargo ship on its way to Odesa a week later. Ukraine then claimed that half a dozen Russian ports on the Black Sea coast were military targets and mounted a second unsuccessful naval drone strike on two more Russian naval ships on August 17.

Things are escalating and Sergey Vakulenko, an independent energy analyst, asked if the Black Sea might come to resemble the Persian Gulf during the Iran-Iraq war in the late 1980s in a note for the Carnegie Endowment for International Peace.

“The current events are most reminiscent of the circumstances of almost 40 years ago,” Vakulenko said. “During the Iran-Iraq war, both sides tried to stop each other's oil trade and began a "tanker war" that lasted from 1984 to 1988. They fired on tankers going to enemy oil ports, including those under the flags of Nato countries - Great Britain, Hong Kong (then British possession), the USA, Denmark, Norway, Greece, and Turkey. Missiles, torpedoes, mines and cannon fire damaged several dozen merchant ships.”

Notably, Iran's attacks were not restricted to Iraqi tankers; they even targeted tankers serving Kuwaiti exports, said Vakulenko. These strikes continued even after the tankers were transferred to the American flag. In a tragic incident in 1987, a US Navy frigate was mistaken for an oil tanker and attacked by an Iraqi plane, leading to the loss of 37 American sailors.

Novorossiysk is Russia’s biggest port and the gateway to the rest of the Mediterranean and Asia for Russian oil exports that are keeping the Russian economy alive. However, it also serves Kazakhstan as the Caspian Pipeline Consortium (CPC) terminates at the port connecting the oil basins of the sea with the rest of the world. Some 80% of Kazakh oil is exported via Novorossiysk and an attack on the port threatens to knock Kazakh oil out of the market.

Vakulenko looked for lessons learned during the Iran-Iraq war which made exporting oil from the Persian Gulf a lot more risky, however, he points out that exports did not stop, despite the attacks, albeit at higher risks and costs. “Amid the turmoil, the pursuit of economic interests prevailed,” said Vakulenko.

Given the failure of the twin oil sanctions imposed on Russia on December 5 and February 5 Kyiv must be tempted to take matters into its own hands and destroy the Novorossiysk port, but several factors are holding back its hand for the moment.

The first is that stopping Russian oil probably also means stopping Kazakh oil, an innocent bystander. Indeed, Kazakh President Kassym-Jomart Tokayev has been at pains to keep some distance between himself and Russian President Vladimir Putin despite his country’s heavy economic dependence on Russia. Astana has lobbied both Moscow and Kyiv to scale the tensions back down and resume the Black Sea Grain Initiative from which Russia withdrew on July 17.

A second problem is while ending Russian oil exports would have a catastrophic impact on Russia’s budget, it would also translate into an oil price shock, something the West has specifically tried to avoid. The decision to introduce the twin oil price cap sanctions was to try and reduce the money the Kremlin earns from exporting oil but to keep the volume of exports at the same level so as not to cause an oil price spike.

A simple embargo on Russian oil exports was rejected as the resulting high oil prices would be as painful, if not more so, to the West as they would be to Russia. If Ukraine unilaterally destroyed Russia’s means of exporting oil, it is likely that Western support for Ukraine would evaporate.

The third consideration is destroying the terminals at Novorossiysk, or more specifically, sinking a loaded oil tanker, rather than a Russian navy vessel, would cause a major ecological disaster, which would also undermine Ukraine’s international support.

“Attacks on tankers in the practically closed Black Sea are fraught with oil spills and significant environmental damage for all coastal states, and this may be one reason for Ukraine to refrain from them, even if such an opportunity presents itself,” said Vakulenko.

Hitting the ports

While the ecological consequences of sinking one of Russia’s oil tankers make an attack on a tanker very unlikely, the same cannot be said for the port facilities themselves, which could be destroyed without causing a major oil spill.

There are two oil terminals in Novorossiysk. The first, Sheskharis, has onshore berths while the second, Yuzhnaya Ozereevka, replies on buoys extended several kilometres off the shore.

Russia sends most of its oil from the Sheskharis terminal inside the closed bay, which makes it more difficult to attack, whereas Kazakhstan and its largely Western customers use the more vulnerable Yuzhnaya Ozereevka terminal.

In a scenario where Ukraine manages to destroy Sheskharis but Yuzhnaya Ozereevka is left untouched, Vakulenko said Russia’s reaction would be fairly predictable.

“If that happened, you could expect a whole range of Russian reactions: Russia would find significant “technical problems” that demand both terminals stop operations; a ban on operation due to military threats; or some reason to allow Russia to use the Yuzhnaya Ozereevka terminal,” said Vakulenko. “If Ukraine refrains from attacking this terminal, so as not to harm Kazakhstan and its international partners, then the joint use of this terminal will provide protection for Russian cargo ships interspersed with Kazakh ones, just as civilian hostages serve as human shields for terrorists.”

If Russian exports through Novorossiysk cease entirely, then Russia would have to redirect its exports via Ust-Luga in the Baltic Sea, using its domestic pipeline and railway networks.

It would be easier for crude oil as its export volumes through Novorossiysk were falling even before Russia began to reduce its production recently as part of the recent OPEC+ deal. Most of the reductions Russia has made under the deal were reductions in the exports via the Black Sea direction.

However, oil product exports, which previously were sold in the Mediterranean and north African markets after the sanctions were introduced, will face a more challenging transition, said Vakulenko.

Ust-Luga could take up the slack if the Black Sea power closed. Built in 2012 and since then repeatedly expanded, Ust-Luga can handle the volumes but the journey by tanker to the rest of the world’s markets will become significantly longer, especially for deliveries to India and China, while those to Turkey become much less profitable.

“The redirection of oil to the northern port of Ust-Luga would be painful for Russian exports of oil products. After the February 2023 European embargo entered into force on the import of Russian oil products, the countries of the Mediterranean and Africa became the main market for Russia. In addition, this will create an additional load on the railways in the north-western direction: 4mn tonnes of diesel fuel per year goes to Novorossiysk from Volgograd through the pipeline,” said Vakulenko. “Finally, such a development will create problems for Bulgaria and Romania; their oil supplies from Russia were recognised as so critical that an exception was made for these countries from the pan-European embargo.”

Given all the problems, Vakulenko said a repeat of the Iran-Iraq war can be expected where there are regular attacks on ships and the ports, but the flow of oil and goods by both countries from their respective ports will continue as the trade is simply too important to both countries.