"Shadow fleet" enables Kremlin to circumvent Western sanctions
The "shadow fleet" allows the Kremlin to circumvent Western sanctions, referring to "a group of outdated ships illegally transporting oil," according to the Polish Institute of International Affairs.
Despite sanctions imposed on Russia, the export of oil from the country has not been blocked. According to BBC reports in early February, millions of barrels of fuel made from Russian crude oil are still being imported into the UK despite the sanctions imposed on the Kremlin in relation to the war in Ukraine.
As a result of an existing loophole, Russian crude oil is being refined in third countries, especially in India, and the resulting products are sold to the UK. As the BBC pointed out, this is not illegal and does not violate the British ban on the import of Russian oil but weakens sanctions intended to limit Russian war funds.
**"Shadow fleet" and price cap**
The G7 countries and the European Union introduced a price cap of around £45 per Russian barrel of oil. This way, the West aimed to strike at the Kremlin's budget. "The sale of oil and oil-derived products before 2022 accounted for about 40 percent of the total value of exports from Russia and provided it with about 30 percent of budget revenues. Most hydrocarbons went to the EU," emphasises Szymon Pastucha from PISM.
Moscow, looking for a solution, turned to the "shadow fleet." Its task is to transport oil at a higher price than the sanctions stipulate. The fleet "led to virtually complete circumvention of the sanctions – in February 2023, it accounted for 40 percent of oil transport, and a year later, for almost 80 percent. Persistent effects of the sanctions include increased freight rates, reduction in the volume of commodities sold, and the need to offer discounts," highlights the PISM expert.
In practice, Pastucha explains, the fleet consists of units with an opaque and variable ownership structure, mainly entities from Asia and the Middle East. These companies are said not to have experience in the oil market.
This also applies to logistics companies, whose data usually remains hidden, and most of them have headquarters in the UAE, China, Turkey and from the EU countries – in Greece, Cyprus, and Malta. To make ships harder to identify, their names and flag registrations are changed – the most commonly used are so-called flags of convenience of Panama, Liberia, Gabon and the Marshall Islands. Additionally, ships often conceal their location by turning off lights or AIS transponders (a location system ensuring shipping safety) - presents this practice Tymon Pastucha.
**Old tankers for the Kremlin**
The units used by the Kremlin are worn with time. Most of the fleet is said to have more than 15 years, and those ships do not undergo regular repairs, which could have significant environmental consequences in the event of an accident and leak. According to data, tankers are operated for about 20 years.
Similar solutions, as Russia used, were previously applied by Iran and Venezuela, who wanted to circumvent mainly American sanctions.
How big is the "shadow fleet"? It's said to even consist of 200 ships, which would mean that nearly 80 percent of Russian oil reaches its customers bypassing the sanctions. The "black gold" is said to reach India, Turkey, and China.
"A significant increase is observed in the case of India, which did not import crude from Russia before 2022, and now about 35 per cent of its supplies come from this direction. The mentioned countries often process the imported oil and re-export it to EU countries (India in 2023 became the second-largest supplier of oil products to the EU, climbing from sixth position)" - we read in the PISM analysis.
So how should Western countries react? Pastucha suggests lowering the price of a Russian barrel to £20-£23, as this is the estimated profitability of extracting Russian oil.
This would motivate the Kremlin to increase exports, as the budget deficit created by Moscow would have to be filled with a greater number of orders. "This will create a greater demand for tankers, which the 'shadow fleet' will not be able to satisfy," believes the PISM analyst.
In this way, Moscow would have to cooperate in the export of oil with entities that comply with sanctions. "With effective insurance verification of ships, Russia's revenues from oil sales would then decrease by another 50 percent," summarises the expert.
