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Keeping It Moving through the Canal
// Russian Tanker Cuts Off Europe from Arabian Oil
Shipwreck
The Suez Canal is the narrow point along the path taken by most of the oil tankers traveling from the Near East to Europe. It is now blocked after an accident involving the tanker Tropic Brilliance, owned by the Russian state Sovkomflot Co. As a result of the accident, 135 vessels have backed up along both entrances to the canal. It is the most serious incident on the canal in the last 30 years. If the jam does not clear up in the next two days, the price of oil may go up by another $1.50 on the European market and major refineries will close down gasoline production for lack of raw material. The ship's owner or the company that provided the pilot will have to pay for the accident that has shut down Europe's oil supply. The Egyptian government and the shipping and oil companies that are facing losses from their inability to fulfill their contracts will all file suits.
The Sovkomflot Co. (an abbreviation of Modern Commercial Fleet in Russian) is a wholly state-owned company with 55 ships of various types with a combined deadweight of 3.9 million tons. The majority of the fleet is made up of tankers for oil and petroleum products. Nearly all the ships fly under flags of convenience. Sovchart S.A. of Geneva and Fiona Maritime Agencies of London are the commercial managers for the company and the Cypriote Unicom Management Services, Ltd. is the technical manager. The company's income last year was $372.7 million, of which its profit, calculated by IFRSs, was $186.4 million.
The Tropic Brilliance is one of four tankers of the Tromso series built at the South Korean Hyundai wharf in 1991-1992. It is 273.76 meters long and has deadweight of almost 155,000 tons, with a double hull and double bottom. Its last scheduled maintenance took place in October 2004 in the Port of Bahrain.
Deputy chief of the operations department of the Sovkomflot fleet Andrey Novikov told Kommersant that the incident took place in the second half of the day on November 6. The Tropic Brilliance, with a Russian crew, ran aground three miles to the north of Ismailiya, on the 73rd kilometer of the Suez Canal while maneuvering with an Egyptian pilot on board. According to Kommersant's information, the steering mechanism on the ship failed. The ship was heading from the Kuwaiti port of Mina Saud to the Gulf of Mexico with 142,500 tons of oil on an order from the Gulf Agency Co. “No crewmembers were injured in the incident, the tanker is undamaged and there is no threat to the environment,” Novikov said.
The Suez Canal has a maximum width of only 169 meters and ships can travel only in one direction at a time through it. At the time this issue went to print, Reuters was reporting that there were 135 ships backed up around the canal. This is the most serious incident on the Suez Canal in almost 30 years. The canal was last closed in 1967 during the Arab-Israeli war, and was opened again only in 1975.
The Russian tanker's accident will have serious consequences for the oil market as well as for the Sovkomflot Co. Losses suffered by Egypt (the canal was nationalized in 1956 and is one of the main sources of the country's budgetary income) have come to $14 million in just two days.
All shipments of oil from the Persian Gulf to European ports pass through the Suez Canal. An average of 50 vessels per day use the canal. If the delay is not cleared up in the next few days, oil prices in Europe my rise by $1.50 per barrel, as experience from falling oil supplies from Iraq has shown. A similar price jump was seen when 300,000 barrels a day of Iraqi oil was lost. About 20 percent of Europe's oil and 7.5 percent of all oil shipped by sea passes through the Suez Canal.
Sovkomflot's problems are likely just as bad. “Aggrieved ship owners will most likely file suits and try to seize the respondent's property around the world,” former Sovkomflot general director and current member of the Federation Council Dmitry Skarga commented for Kommersant. By even the most conservative calculations, the amount of those suits could come to $2 million. Skarga said that those expenses would be easily coverable by insurance (the Tropic Brilliance's body and equipment are insured by the London JLT Risk Solutions club and its liability insurance is provided by the Norwegian Skuld), but next year, the company's insurance costs would then increase several-fold. The company now spends about $5 million per year on insurance.
Sovkomflot general director Sergey Frank refused Monday to comment on the consequences of the accident. “It is more important for us to eliminate the emergency right now,” a Sovkomflot manager told Kommersant. The same manager said that they began pumping the oil from the Tropic Brilliance into two Egyptian backup tankers Monday evening. Lightening the tanker by 20,000-25,000 tons would make it possible to refloat the ship so that it could be towed out of the canal to a safer location. Traffic may be restored along the Suez Canal on Tuesday, he added. Representatives of Leth Suez, the Norwegian company that manages operation on the canal, were unable to say when the Tropic Brilliance might be refloated and canal traffic returned to normal. Mr. Hein, a Leth Suez manager at the canal, said that it might take several days to clear up the accident. Divers are now examining the bottom of the ship and the decision on refloating the Tropic Brilliance depends on their findings. Mr. Hein said that claims related to the incident will not be made until movement on the canal has returned to normal and an Egyptian commission establishes the cause of the accident. The respondent may be Leth Suez as well as Sovkomflot.
About the Suez Canal
Construction began on the Suez Canal in April 1859, and it was opened on November 17, 1869. Thanks to the canal, the sea route between Western Europe and India was shortened by 8000 kilometers. The length of the whole transport system is 193 kilometers, and the canal itself stretches 161 kilometers. Its maximum width is 169 meters. Ships with a depth of immersion of up to 16.1 meters can pass through the canal. The minimum speed allowed on the canal is 10 knots. Freighted vessels with displacement of more than 90,000 tons must be accompanied by two tugboats.
Traffic on the canal high a high in 1982 with 22,545 vessels that year. Since then the number of vessels using the canal has been falling, but the total tonnage passing through it is rising steadily. In 2003, 15,667 vessels passed through the canal with a total of about 550,000 tons of displacement. That includes about 2800 tankers, which carried 1.3 million barrels of oil per day, 25% more than the year before. Most of that oil was moving from the Persian Gulf to Europe or the United States. In 2001, the canal's administration developed a five-year program to shorten the transit time through the canal from 14 to 11 hours. The canal is to be made deeper before 2011 to allow supertankers with loads of up to 350,000 tons through.
The Suez Canal and Oil Prices
The first oil crisis connected with the Suez Canal was in October 1956, when Egyptian president Gamal Abdel Nasser announced the nationalization of the canal and Great Britain and France declared war on Egypt. As a result, prices for crude oil in Europe rose by 25-30 percent (from $2.90 to $3.80-4.00 per barrel) within days. By March 1957, oil prices had stabilized at $3.15 per barrel.
The oil market was shaken again in June 1967 when the Six-Day War shut down traffic on the canal. The canal opened again only in 1975. A barrel of oil in Europe cost $3.35 at the start of the crisis, and reached $5.20 in 1975.
Due to concern connected with the fact that the Suez Canal was located in the Arab-Israeli conflict zone, other routes were sought to move oil from the Persian Gulf to Europe. Pipelines were built in Egypt and Israel leading to the Mediterranean Sea. As a result, the Suez Canal was no longer the main route for oil in the region and stopped exerting influence over oil prices.
Volga-Don Canal to Be Finished by November 23
The Interfax news agency reports that restoration work on the Konstantinovsky hydrosystem of the Volga-Don canal is to be completed by November 23, according to a statement by the Azov-Don State Waterways and Shipping Basin Management agency. The canal was closed to traffic on November 1 because of an incident involving the vessel Morskaya Baronessa, belonging to the Alko Co. The ship rammed the gates of a lock after its engine failed, the damaging two 50-ton gates. About 140 vessels were backed up because of the accident, most of them loaded with oil.
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Incidents Involving Russian Tankers
On January 2, 1997, the Russian tanker Nakhodka sank in the Sea of Japan with 20,000 tons of diesel fuel on board. On November 1, 1999, the Japanese government filed a suit for $95 million against the Russian owner of the vessel, Prisco Traffic, in Tokyo District Court. On September 1, 2002, an out-of-court settlement was reached, in which the shipper agreed to pay $221.27 million in compensation for damages.
On December 29, 1999, the Russian tanker Volganeft-248 was involved in an accident near the Turkish port of Ambarli. The tanker belonged to ZAO Transpetro-Volga and had 4300 tons of oil on board at the time of the accident. Russia assisted Turkey in cleanup operations and no financial claims were filed.
On the night of August 6, 2001, off the coast of the American state of Massachusetts, the Russian tanker Virgo, belonging to the Russian Maritime Sea Shipping Co., collided with the American trawler Starbound. Three crewmembers on the trawler were killed as a result. On October 12, 2001, a trial began in the St. Johns, Newfoundland, Canada, of the captain of the tanker, Vladimir Ivanov, second navigator Dmitry Bogdanov and helmsman Mikhail Gerasimov, who are accused of violating navigation rules. On February 3, 2003, the court freed the sailors until the circumstances of the loss of the American vessel are conclusively established.
On November 19, 2002, the Liberian tanker Prestige, chartered by the Alfa Group affiliate Crown Resource, was involved in an accident 150 kilometers off the northwest coast of Spain. At least 4000 tons of the 77,000 tons of diesel on the ship were released onto the ocean surface. Both French and Spanish waters were polluted. On January 7, 2003, lawyers for the Spanish government requested a number of documents from the charterer of the ship. Charges have been filed against the ship's captain, Apostolos Manguras, who was released on a ˆ3-million bail.
UPDATE
RossBusinessConsulting reported just after 1:00 p.m. on Tuesday that the Tropic Brilliance had been refloated in the Suez Canal. Sovkomflot's Andrey Novikov told the agency that the vessel will be towed either to a safe place in the canal, or to Port Said, for further inspection.
Sergey Ryzhkin
All the Article in Russian as of Nov. 09, 2004
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